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Business Partner Insurance - Why Business Owners Should Consider It?
Jul 12, 2010 - Eric Smyth
Should one of your business partners pass away would the remaining partners be able to write out a cheque for their share of equity?
That is why it is advisable for any business that has two or more owners to have business partner insurance.
Why business partner insurance is needed?
Generally speaking most businesses depend on a few people to generate the profits, provide the finance or manage the business. If there is no suitable benefit plan in place the business may experience financial difficulties, which may result in the demise of the business.
The majority of businesses rely on their external financial advisers to determine the risk factor to the business.
To prevent any hardship occurring to the business it is suggested that they receive good financial advice about business partner insurance.
The basic business partners insurance principles are:
- Buy-sell insurance.
- Reducing of debts or guarantor protection insurance and
- Key person insurance
Buy-sell agreements or business wills
This is usually implemented between business partners so that their respective interests in the business are safe guarded should one of them pass away, become disabled or suffer a traumatic or terminal illness. This is a will for the business.
The agreement should provide a clause so that the terminating business owner or their estate can sell their interest in the business to the remaining owners, and for the remaining owners to purchase the terminating owners interest in the business. The agreements should stipulate the means of funding, and the buy-sell obligations of the respective owners.
In most cases buy-sell agreements are solely concerned with the sale of the interest in the business.
As a consequence they omit to deal with the release of guarantees or securities granted by the insured or a family member.
In most instances agreements deal with both assets and liabilities and key person issues. These agreements are usually called Business Succession Agreements.
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