Life Insurance

Life Insurance for Small- Business

Partners

• Few events can cause more turmoil in a small business than the death of an owner. Besides the personal loss, there’s the practical loss of a key asset and the question of ownership going forward.• A life insurance payout can provide operating cash to

get the company through a tough time. It can also help the surviving owners buy a late partner’s share from his or her heirs. Arrangements like this are often set in a buy-sell agreement, one of the most important documents in any business partnership.• Buy-sell agreements are like prenups. They’re legal

contracts between business co-owners, detailing how the ownership transfers if one partner dies, becomes disabled or leaves the business. • Creating an agreement is one step in the succession

planning process. Funding is the other. That’s where life insurance comes in.

Creating a business succession plan• If you’re already in business with a partner and

don’t have a buy-sell agreement signed and funded, start the process now. Without such an agreement, you could wind up in business with your partner’s spouse or kids. And without a life insurance policy, you might have difficulty funding the agreement. For example, the loss of one owner could make it hard to qualify for a loan.• Before he joined New York Life some 30 years ago,

Goodin owned a handful of Shell Oil gas stations in Reno with a partner. He says one of the first things they did was create a buy-sell agreement and purchase life insurance on each other.• “I didn’t want to be partners with his wife if he

died,” he says.

Choosing term or perm• Pick a life insurance policy based on the length of

time you’ll need coverage and your budget.• Term life provides coverage for a certain period —

such as 10, 20 or 30 years — and pays out if the insured person dies within the policy’s term.• Permanent life insurance — such as whole,

universal or variable life — costs many times more than term policies. This is because the policy covers the insured’s entire lifetime, and features a savings account, which grows tax-deferred. Once enough cash value is built up, the owner can borrow from it or terminate the policy for the surrender value.

• Permanent life insurance — such as whole, universal or variable life — costs many times more than term policies. This is because the policy covers the insured’s entire lifetime, and features a savings account, which grows tax-deferred. Once enough cash value is built up, the owner can borrow from it or terminate the policy for the surrender value.• Permanent life insurance might be a good choice if you plan

to stay in business together for many years and want the forced savings that a policy provides. After many years, the cash value could be used to fund a buyout if a partner leaves for a reason other than death. At retirement, each partner can take ownership of their own policy and use the cash value to supplement their savings.• It’s also a good option if you have limited cash flow, even if

you might want permanent life insurance later on. Most term life policies are convertible to permanent life insurance.

Source: https://www.nerdwallet.com/blog/insurance/life-insurance-small-business-partners/ 

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