- Helene S. Meyer Insurance, Inc.
- 647-886-4822
- 647-638-4909
Owning and operating your own business can be rewarding. But ensuring its long-term success and protecting it from financial risks can be challenging.
We can help address the unique business planning needs of businesses of any size, and help offset some of the risks you face. We also work together with Tax and Estate Planning group consultants to help create a solution that’s right for you.
Buy/sell agreements provide for the transfer of the ownership of the business in different circumstances; death, disability, retirement or disagreement. An accompanying life insurance policy can provide funding in the event of a partner or major shareholder’s death, to buy out the deceased’s interests in the business.
A buy/sell agreement should address the following:
Proper funding should be in place to ensure that money is available to buy the shares of a deceased or disabled owner, should the event occur. Life insurance provides the necessary dollars at a far lower cost than borrowing to fund a buy-out. Funding the buy-out directly from cash flow can be difficult as the loss of the owner has probably already placed strains on the cash flow of the business. The best alternative is to be prepared with life insurance.
The goal is simple: satisfy all parties so the business can get on with business. Although a buy/sell agreement is a legal document, it still needs to be properly funded. If it isn’t, an unexpected crisis could cause serious financial concerns for the business and its owners. A properly funded buy/sell agreement provides access to adequate funds to facilitate any share purchase obligations contained within the agreement.
Business owners recognize the benefit of insuring their firm’s valuable assets, such as office equipment and inventory, to cover property loss. Such assets, however, may not be as valuable as key persons.
A key person is anyone associated with the business whose special skills make a major contribution to the bottom line. Some examples include the active business owner(s), employees who have strong relationships with valued customers, and any employee who has specialized knowledge and expertise that can’t easily be replaced.
Calculating the potential financial impact of the loss of a key person’s services to a business may not be easy, and no set formula or rule can be used for all business situations. Some questions that may be considered when determining a reasonable coverage amount can include:
To implement key person life insurance in a corporate context, the corporation is the applicant for the life insurance coverage to be arranged on the life of the key person, and the named owner and beneficiary of any policy that is issued.
The premium is a non-deductible expenditure by the corporation and the life insurance proceeds are non-taxable when received.
When considering key person life insurance, you should always consult with all your professional advisors to help asses the risk involved and the appropriate amount of coverage to be applied for.
Are you sure you are protecting what’s most important
