Business Partnership Life Insurance and why every partnership needs it

If you own your own business, the chances are that you have a lot on your plate.  You have to manage the business, keep your clients happy, and somehow make a profit.  This can take a lot of time and energy, and unfortunately most of the people that we come  across have overlooked life insurance.  


Your business needs life insurance just like you do personally.  Life insurance for your business partnership should be an essential part of your business plan.  If you have partners, and one of them die, what happens to their shares?  Does it pass to their family?  How will you buy it back from them?  Without life insurance, your business could suffer some major consequences.



What is Business Partnership Life Insurance?

Business Partnership Life insurance is designed to protect the business partners in the event that one were to suddenly pass away.  It can be designed to do a number of things such as, buy the partner shares in the business, repay the partners' investment in a new businesses, and use the money to replace a key employee. 


Why does my company need it?

You've worked hard to get to this point.  It took planning, preparation, hard work, and a lot of sweat equity.  You've planned for almost every foreseeable event, but what about the unforeseen? Life can change in a split second.  When you are young, you feel invincible.  Reflect back and ask, how many of my high school classmates are still here today? 

The main reason to get it is to protect the partners from the unforeseen.  If one of the partners passes away, the other(s) are protected.  People don't think about other people dying before they reach the age of retirement, but death can occur at any time.  

Just ask yourself, what would my company look like without my partners?


How does it work?

Life insurance for your business works like regular life insurance.  It pays a death benefit to the beneficiaries if the insured passes away.   In the case of businesses, most of the time the business cannot function, or functions at a limited capacity with the loss of one of the partners.  The death benefit from a life insurance policy could help replace lost income, hire new talent, buy out the partner's shares, or be used to wind down operations.

In some cases, the policy could be used for serious injury or illness.  This isn't the case in all policies, but it can be an option.



 3 Main Types of Business Life Insurance:

Key Person Life Insurance

With Key person life insurance, you will appoint a person who greatly impacts your company's profits.  This is usually an owner or executive in a higher-up position.  This person is someone you should really insure.  Think about the negative impact that person would have on your business if they were to pass.  It could take years to train someone to replace them to the same level of success.

Buy/Sell Agreement Life Insurance

With a buy/sell agreement, you and your partners need to figure out how you will transfer the business' equity in the case of death.  It's essentially a plan for what to do if one or more people pass.  These agreements are typically made up of two components: a transfer agreement and a funding agreement.  These are setup with the business partners' life insurance policies.

These agreements helps to ensure that the business is handled properly.  Without them, the surviving business owner might have a rocky transition, and it keeps the process more conflict-free.

How does ownership work and who pays the premiums?

Cross-Purchase: These agreements are sometimes cross-purchased.  For example: Bill and Ted own a time-machine company.  Bill would take out a policy on Ted, but Bill would own and pay the premiums on the policy for which Ted is insured.  This would protect Bill in the event that Bill and Ted had an argument and Ted decided to not pay for his policy.  Ted would do the same for the policy on which Bill is the insured.

Entity Redemption: This is a similar concept to the cross-purchase, however the company pays the premiums.  You usually see this with larger corporations. 

Business Expenses Life Insurance

This is designed primarily for businesses that have fewer than 5 employees that are working for income. Business expenses life insurance gives you the benefit that you need in order to pay for all of your monthly expenses should you become sick or injured and cannot work.  This kind of life insurance will keep you afloat temporarily.


Which type is best for your business?

You have questions, we have answers.  Give us a call today at 810-202-6030 to setup an appointment to discuss your business needs.