Insurance Options for Business Succession
Business owners who desire to see their businesses continue after they are no longer involved must plan carefully.
When an owner (or owners as it may be) is planning for succession in a retirement or buyout scenario, many things must be considered. Life insurance comes to the forefront when the succession planning being addressed involves the owner's death.
Life insurance can provide an immediate lump sum with business succession planning, as in other estate planning situations. That sum, the death benefit, can be used by the beneficiary to buy out the deceased owner’s share of the business.
A typical business succession planning strategy is the “buy-sell agreement.” A buy-sell agreement is when one party (or parties as it may be) agrees to buy the deceased owner’s share of the business at a predetermined price from the deceased owner’s estate or heirs. Having such an agreement in place can help ensure the smooth transition of ownership while minimizing the potential disruption of day-to-day operations, which the deceased owner’s absence may already impact.
The life insurance policy can provide the funding necessary to buy out the deceased owner’s share of the business. A business’s continuation can be jeopardized when no agreement and insurance policy is in place. Without these two components, the remaining owner(s) could be forced to liquidate if the heirs are not interested in keeping the business, forcing the remaining owner(s) to try and raise the capital needed to buy out the heirs. Failure to do so could mean the end of the business.