Protect Your Business Succession with Life Insurance
Cumbre Insurance Services, LLC offers businesses risk management strategies in the form of Life insurance to help an organization reduce uncertainties in the event an owner, partner or key executive passes away. We offer Key Person Life insurance and Buy-Sell Agreements to help companies with their business continuity planning.
Key Person Life Insurance
With a Key Person Life insurance, your company purchases a policy on your key employee(s), pays the premiums and is the beneficiary. If a key employee unexpectedly passes away, your company will receive the insurance benefit, which it can then use for expenses until a replacement is found, or, if necessary, pay off debts, distribute money to investors, pay severance to employees and fold the business in an orderly manner.
To determine who needs Key Person Life insurance, take a look at your business and think about which individuals are irreplaceable in the short term. For many small businesses, it’s the owner who holds the company together. The amount of insurance you purchase will depend on how much money your company needs to survive until it could replace the key person and get the business back on its feet. Purchase a policy that fits into your budget and will address your short-term cash needs in case of tragedy.
In the event a partner in a company is unable (in the event of a premature death or disability, for example) or unwilling to continue with the business, a Buy-Sell Agreement sets out how that partner’s interest is transferred. Think of a Buy-Sell Agreement as a blueprint to predetermine the sale or transfer of the company or an interest in it based on some specified future event, including the retirement of a partner or owner. It protects all partners and/or family members and provides certainty in the event an unexpected crisis necessitates a change in leadership.
A Buy-Sell Agreement establishes the terms of a partner’s exit from the business. It determines how a co-owner’s shares are sold, including who can buy them and at what price. Typically, Buy-Sell Agreements are drafted with funding provisions, such as an insurance policy, to pay for a buyout. Certain provisions might limit the personal risk held by each partner and shift it to the business entity.
Cumbre Insurance Services can help you structure a Buy-Sell Agreement and fund it through a Life or Disability insurance policy. That funding is particularly important if perpetuation of the business is your priority. The payout from an insurance policy can be used to facilitate a quick sale of the business interest to a beneficiary, or it can be used for estate taxes.