Owning your own business can be a satisfying experience in many ways, but owning a business comes with responsibilities – to your business, your employees and your family.
Among the questions to ask yourself when considering how you have planned for these responsibilities:
- What will happen to my business if I die or become disabled?
- When I retire, what will happen to the business?
- What will happen if key employees die or become permanently disabled?
- How can I help ensure that my business will be able to weather unforeseen financial hardships?
Although you may have thought of these questions, you may not have fully addressed them. With proper insurance and benefits planning, you can help protect your business and family, improve recruitment and retention, and provide new avenues to reward employees.
Once you better understand your benefits and insurance needs, consult professional advisors who can help structure a plan that is right for you and your business.
Disability
If you become sick or injured and are unable to work, disability insurance replaces a portion of your income. This type of insurance coverage is often overlooked, as few people stop to consider what would happen to their business and their personal income if they were unable to work.
Business owners also should consider business overhead insurance, which reimburses a business for overhead expenses in the event a business owner becomes totally disabled. A policy typically pays benefits for one to two years and helps cover expenses like salaries, taxes, employee benefits, rent, mortgage, utilities, equipment, malpractice premiums, etc.
Buy-Sell Agreement
Life insurance can be structured to fund a buy-sell agreement. This is a contract among owners to buy a deceased owner’s share of the business at a previously agreed upon price in the event of death, disability or retirement.
Why are these agreements so important? You might think that if you die, your family could maintain their income by running the business themselves or by hiring someone to handle the day-to-day management. The fact is, your loved ones may not have the skills or the desire for the job and your co-owners may not welcome the idea of an unintended partner. With a properly structured and funded buy-sell agreement, your business partners won’t have to scramble to come up with the money to buy out your share of the business, and you’ll be guaranteed that your survivors will be compensated fairly and promptly.
Buy-sell agreements are typically funded by life insurance policies purchased on the lives of each of the business owners. The amount is usually specified in a contract created with the help of an attorney. You can enter into a buy-sell agreement at any time, but it often makes sense to do so when a business is formed or when new owners are brought into the business. Because business values can fluctuate, it’s important to review the contract with your accountant at least once per year or to include a calculation method in the agreement. Also be sure the insurance coverage funding the agreement is up to date.
Business owners can also insure against the risk of becoming disabled and unable to work. In this case, disability income buyout insurance would fund the buy-sell agreement, allowing the disabled owners to be bought out, typically after a one-year period.
Key Person
Key person insurance can be an essential component of your smart business continuation plan. Key person insurance is life or disability insurance purchased by the business on such an employee and payable to the business. When a key person dies or becomes disabled, insurance can help make up for lost sales or earnings or cover the cost of finding or training a replacement.
As your business grows and your needs change, your buy-sell agreement and insurance policies may need to be updated. Your business advisors, including your attorney and insurance representative, may assist in reviewing agreements and policies to make sure they reflect your situation.
This information is provided courtesy of BB&T Insurance Services. NFA partner – BB&T Insurance Services – can assist you with any of the coverage options listed in this article. Protect your business by contacting them today at servicenow@bbt.com or 888-399-2040.