A Casual Request
We were sitting in the second floor office, overlooking the water, discussing the company’s commercial insurance. At the end of a productive discussion, the one business partner said, “Oh, by the way, we are also going to need some key man insurance.”
The Surprising History
At the next visit, we learned that there had been three founding partners, and one of them had a sudden heart attack in his mid-fifties. The other two partners had to set up a payment plan to buy out the survivors of the deceased partner. As it turns out, they are still paying large amounts of money every quarter. “We have had a buy-sell agreement from the beginning,” they said. “And as you can see, we have had to use it. That determined how much each partner’s share of the company was worth. But now we want to fund it with life insurance, so it doesn’t become a huge operating expense.”
They are now setting up cross-purchase life insurance to fund their buy-sell agreement. Each partner is the owner of a life insurance policy on the other one. If one partner were to die, the other would receive the death benefit, and would have to use that to buy out the family or estate of his partner. He would then own the business, and it could survive.
Final Piecees of the Puzzle
As it turns out, they decided to purchase key man and disability insurance as well. Key man insurance is a life policy taken out by the company on a key employee to help the company continue with normal operations in the event of their passing away. And disability is the most common cause of businesses and families alike running into serious trouble.
A Common Sense Investment in the Business
Life insurance is the most economical way to ensure a business can continue operating smoothly in the event that something happens to a key employee or partner. It is a small investment in the security and stability of a company, and to future thinking businessmen like my clients, it just makes sense.