Life Insurance for Business Owners

Business continuity

If a business owner dies, the business may face significant disruption. Life insurance can provide liquidity to help the business continue operating, cover outstanding obligations, or fund a planned transition. The appropriate strategy depends on the business structure, ownership, and the owner's role.

Key-person coverage

Key-person insurance is a policy owned by the business on the life of an employee or owner whose death would have a significant financial impact on the business. The death benefit can help the business cover lost revenue, recruit a replacement, or manage the transition period. The business is both the owner and beneficiary of the policy.

Buy-sell agreements

A buy-sell agreement is a legal arrangement between business co-owners that governs what happens to an owner's interest if they die, become disabled, or leave the business. Life insurance is commonly used to fund a buy-sell agreement, providing the surviving owners with the capital to purchase the deceased owner's interest. The structure of the agreement and the funding mechanism should be developed with legal and financial advisors.

Personal coverage for business owners

Business owners also have personal life insurance needs—protecting their family's income, covering personal debts, and ensuring their household is not financially dependent on the business. Personal and business coverage should be evaluated together to avoid gaps or duplication.

Questions to consider

• What would happen to my business if I were no longer here?
• Do I have a co-owner, and do we have a buy-sell agreement in place?
• Are there key employees whose loss would significantly impact the business?
• Does my family's financial security depend on the business continuing?
• Have I separated my personal and business insurance needs?