Insurance Protection, Part 2: Business Insurance
Last week we discussed several different types of personal insurance that everyone should consider. This week, we want to discuss the types of business insurance that every business owner should be aware of and consider as part of a comprehensive business plan.
- Key Person Insurance: This type of insurance will provide the company with a lump sum payment in the event that a key employee dies. The money can be used to cover the cost of hiring a new employee or to implement measures to prevent the business from suffering due to the loss of the key employee. This is type of insurance can be written as life insurance and/or disability insurance.
- Buy/Sell Insurance: This type of insurance is ideal for businesses that have more than one owner as it will pay a benefit to the company upon the death of one of the partners, which provides the funds needed to pay the family for the ownership stake of the deceased partner. There are different ways that this buy/sell agreements can be written so it is best to work with your financial advisor and tax professional to determine what works best for your business.
- Deferred Compensation: Life insurance can also be used to fund a non-qualified deferred compensation plan for your employees. These types of polices are typically written as a form of whole life insurance and can be either a defined benefit pension plan or provide informal funding. Life insurance polices written to provide employee benefits can also be complex and it is important to work with your financial advisor and tax professional to review the options available and how they can benefit your business.
We don’t like to think about how the world will go on after our death, but it is an important topic to address for our family members and our businesses that we leave behind. Please let us know if an insurance analysis would be helpful for you.