It’s a cold reality of running a business: you have to get a lot of things right to be successful, but you only have to get one thing wrong to fail – and there are many paths to failure.
Because you face such a variety of risks every day, it’s crucial to have the right insurance protection as part of your overall risk management strategy. But while most business owners do a good job of protecting their facilities, equipment, products, and employees, many of them fail to protect a crucial aspect of their operations – the ability to stay in business. To help you avoid a nasty financial surprise, consider these coverages:
- Buy-Sell Insurance. If you own all or any part of a business, things can get messy if an owner or partner dies, becomes disabled, or retires. Who gets control of the business? What are the conditions of buying out a partners’ interest? A buy-sell agreement outlines what will happen to the business in the event of the death, disability, or retirement of an owner or partner. It’s like a prenuptial for your business that can help avoid messy legal battles, keep the business going, and avoid liquidity problems common to these major events.
- Key Person Insurance. If you have one or more crucial employees – people who generate significant revenue for your business and are integral to your profitability – what would happen if one of them died? Key man insurance is basically life insurance on your key people. You own the policy, pay the premiums, and are the beneficiary, and the money can be used for expenses, paying off debts, paying severance to employees, and closing down the business without the chaos. But what if a key person doesn’t die, but merely leaves the company? You could be stuck paying expensive premiums, and if you’ve had the policy for many years, dropping the coverage is throwing your investment away. But there are options. One is low-cost term insurance that doesn’t build up cash value, is held for a short time, and can be transferred from one person to another. A life settlement is another option, which involves selling the policy to a third party business for a fraction of its value.
- Disability. When you’re running a business, what happens if you or one of your key revenue producers becomes disabled? Disabilities happen more often than most people think, whether it’s cancer, a heart attack, a stroke, or a debilitating accident, and there are several coverages you should consider. Business overhead expense (BOE) insurance is designed for owners of small- to medium-sized businesses who are key to the business’ income, and helps keep the business running while you recover from an injury or illness. Disability buy-out insurance protects the business from a permanent disability by funding a buy-sell agreement. And key person replacement insurance provides the financial resources to recruit and train a replacement employee if a key person is totally disabled.
When your business takes a blow from a disaster or the loss of a key person, whether you remain in business depends on how well you’ve planned. For more ways to protect your operation and avoid financial surprises, contact the risk management professionals at BeaconPath.