The Online Business Center

One of the concerns of spouses and beneficiaries of a business owner is the question of what happens to that business if the owner dies. With the death of an owner comes responsibility for providing for the disposition of the business. You may need life insurance and some kind of a buysell agreement. If you die without having made necessary provisions, your beneficiaries may be forced to sell or dismantle the business to pay the estate taxes that might be due. If, instead, you have planned ahead and have an adequate life insurance policy, your beneficiaries can use the insurance proceeds to pay the estate taxes and allow the business to continue to operate. If they decide to sell the business, they will still be left with something to sell.

Life Insurance can be an especially important consideration for a partnership. In many communityproperty states, if a partner dies, his or her spouse now owns that share of the business and has the authority to make that partner’s decisions. This can create a situation that may be extremely unsatisfactory to either the surviving partner or the spouse. That is why it is important to have a partnership agreement that spells out what happens if one partner dies. A life insurance policy can be included as part of the partnership agreement with a provision designating that the policy payoff be used by the surviving partner to buy the deceased partner’s share of the business.

The purchase of individual permanent life insurance by business owners can fund a deferred compensation program on a non-tax qualified basis allowing owners to set aside money for retirement or pay a death benefit to the surviving spouse. Key Life insurance can also be purchased to cover key people whose death might affect the company’s sales and profitability. A term policy would pay to help replace the loss of the person. A permanent key person life insurance policy would also accumulate cash value to help fund that person’s retirement plan.