What happens if your business partner dies?
Key person insurance helps you continue to run your business in case of an illness or accident. But, you’ll also need to protect your ownership of the business in case of a death.
Your lawyers may have already written a buy/sell agreement into your business contract. This type of agreement allows you to purchase your partner’s share of the business if they die. Depending on agreement terms, it may only outline the terms of a business sale. In this case, it doesn’t provide a source of funding for the purchase.
So what happens if you don’t have the full value of your partner’s share in your personal savings? Then you might not have the funds to buy their share when you need to. That’s where insurance comes in. “Life insurance can help to protect you, your business and your family,” says Devine. “Just make sure each partner is listed as the beneficiary.”
The right life insurance policy means you’ll have money to become the sole owner in case your partner dies. But what happens if you die? Then your partner’s life insurance policy helps them afford to buy out your share of the business. This helps your family maintain their standard of living as well. How? They can use the money from the buy out to help cover any expenses they relied on you to pay. For instance, perhaps your family depended on you to cover a portion of the mortgage or rent. Or, maybe your kids relied on you to help fund their tuition years.