There are a number of things that can go wrong in any sized business, and while most businesses have many of the typical insurances which can cover them from costs, there are a few less common ones which can make a world of difference.
Key Person Insurance
Often, like many team sports movies of the 90s and 00s, a company can point a majority of their success to one or a few key staff members. They may be more naturally more productive, or perhaps their presence has a positive effect on the workforce around them, either way your company does better when they’re around. A big concern in this kind of situation is what happens if that person gets sick, passes away, or something else happens which takes them away from your company.
Key person insurance (previously key man insurance) can ensure that if that person is stopped from working for any amount of time, the economic loss is covered, otherwise the hiring and retraining of a replacement is covered. This kind of insurance is more suitable for the directors of a company, key sales people, key project managers, people with specific skills etc. The money that is claimed from the policy not only allows you to recruit and train key personnel, but also offer salary continuation arrangements to the spouse of the deceased.
Key person insurance is particularly valuable in family business scenarios where the skills of an individual have been honed over years and customers expect a certain quality of good or service that only that key person can provide.
Having good group insurance for your workforce through a group health insurance broker can help to save you money on all facets of health insurance that you offer your employees. As with bulk buying any product, getting group insurance will save you money with discounted rates, and time with only having to deal with the broker for the group as a whole.
With an experienced broker you’ll also be able to provide different levels of insurance for your different staff members, with less necessary insurances such as dental or vision only being offered to higher up staff members. If in any case your staff are at any health risk within the company, then having group health insurance can save you money in the long-term, too.
Combining group disability income insurance with key person insurance can ensure that you’re completely protected against any loss if anything happens to your valuable staff members, and can potentially save you countless dollars.
Buy and Sell Agreement Insurance
Buy and sell agreement insurance is more relevant to businesses which are run under a partnership, as it stipulates what happens to a partner’s share of the company should they pass away or otherwise leave the business; although this insurance can also be applied to sole proprietorships. The agreement generally requires that the business share be sold to the company or the remaining partner of the business depending on how it was set up.
Buy and sell agreements are designed to assist in the considerably difficult situation that a partner’s death or leaving may create, especially protecting the business and their personal and familial interests. There are two common forms of buy and sell agreements: cross-purchase and redemption.
In a cross-purchase agreement the remaining partner(s)/owner(s) purchase the share of the business which goes up for sale.
In a redemption agreement the business entity buys the share of the business.
Mix it up
Often partners will opt for a mix of the two, with individual partners having the ability to purchase portions of the partners share. It’s not uncommon for partners in business to combine a buy and sell agreement with life insurance policies purchased on the other partners, if a partner passes the proceeds from the life insurance policy can be used towards the purchase of the deceased’s share. In the case of a sole proprietor passing, a key employee may be chosen as the buyer or successor.
Partners should work with an experienced attorney and certified public accountant when crafting a buy and sell agreement to ensure that both parties are satisfied with the outcome.
Setting up a buy and sell agreement can also clarify the value of each partner’s share in the business, and if for any reason there is a dispute among owners or partners about the value of a company, the valuation methods in the buy and sell agreement would clarify it.