Business succession strategies involve different components that help it come to fruition. Some elements help you if your succession plan encounters a sudden mishap that threatens to derail it. One example is the use of a key person insurance policy for a business.
Employing this kind of insurance may cover your bases in a few situations that involve passing ownership interest of your company to a new person.
Cover the loss of a successor
You may have identified someone in your business who can someday take over for you as the owner of your company. If you should lose your chosen successor because of death or disability, it could deal a serious setback to your succession plan and even harm your business if there is no one else with comparable skills or experience.
With a key person insurance policy, you can receive coverage to assist you in finding and training a replacement for your lost employee. This helps ensure that your business does not incur serious loss because your successor is no longer available.
Purchase existing owner interest
Key person insurance is also available to help control who ends up with the ownership interest of a partner in a company with multiple owners. If you have a buy-sell agreement in place, you should address how to fund the buyout of a partner who retires, is forced out, dies, or suffers incapacitation.
A key person insurance policy could be a quick, potential source of funding. If a partner succession becomes necessary due to emergency circumstances, you can use your insurance to buy the ownership shares and keep an unwanted party from acquiring them.
Not every business needs key person insurance, but it is worth keeping in mind when you devise a comprehensive strategy to pass your business to a qualified successor.
