Life Insurance For Business Partners

There are some risks linked to going into business with a partner, one of these things is having one of the partners die. Investing in life insurance earlier on when you start your business can be a lifesaver under such circumstances. But make sure you understand how business partner life insurance works and how you can take advantage of it.

Business partner life insurance differs from a traditional plan. They are similar in many ways but there are some key differences to consider. The policy is basically a promise by the insurance company to pay out the beneficiary on the contract the funds if the insured party were to pass away.  The business or individual listed on the agreement should pay monthly or annual premiums. So, if you want to protect your business with life insurance, the beneficiary is the surviving business partner. Life insurance offers great protection for your family but also for your business in the event one of the partners dies.

Both business partners generally contribute a lot to the business – one partner may handle one aspect and another partner handles the other. Right now, you and your business partner enjoy working together but if your partner dies you will have to work with their spouse or heirs of your partner. This may be catastrophic and may cause the downfall of your business.

However, when both partners carry life insurance, the outcome is different. If one of the partners passes away, the death benefit is paid to the business and the surviving partner can purchase the deceased partner’s interest in the company. All companies should have a buy-sell agreement once incorporated. The terms to purchase the deceased partner’s interest are laid out in the buy-sell agreement. The value of buyout is laid out in the agreement as well.

With business partner life insurance, the death benefit is used to fund the buy-sell agreement in the following ways: the cross purchase approach or the entire purchase approach. With the cross-purchase approach, each partner buys term life insurance with the same death benefit and term duration.  With the entire purchase approach, the partnership collects the benefit and sells the interest per the buy sell agreement. This process is designed for corporations rather than partnerships. If you don’t have a buy-sell agreement or a funding approach, you may be forced to dissolve your business if a partner passes away.

Overall, the life insurance contract for a business partner is quite similar to other life insurance contracts, including those for the average individual. The only thing that’s different is the beneficiary and owner of the policy receiving the benefit. Make sure you compare quotes with the help of a licensed insurance agent. Losing a partner is tough, it’d be unfortunate you also have to lose your business, which you both have worked so hard to build.

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