Know Your Options

Companies should plan for these types of contingencies from day one, says Blaine Allen, vice president of employee benefits at The Buckner Company.

“I recommend you remove any variables,” he says. “If you’re starting out, you’re going to have some document telling what will happen in the event of death or disability. It will be a legal document explaining what will happen in these instances.”

Whatever the economic conditions a company finds itself in, Allen advises business leaders not delay and insure themselves, their partner or partners, and their key employees. Even for startups, though it may be difficult, having the right insurance is vitally important.

“The structure of the insurance is different depending on the type of business—corporation, limited liability company, limited partnership, he says. “With a startup, cash flow is an issue. You have to qualify. A con can be the cost. But if you can get a hold of a good, qualified broker who can get a quote, you can make it work.”

The following are common insurance options that can keep your company humming along—even when the worst happens.

Life Insurance
You often hear about the importance of life insurance for individuals as a way to replace income for surviving family members in case of death. But business owners should be aware of how it can affect key leaders and other members of their companies.

Life insurance is critical whether the business is a sole proprietorship or a partnership. In a sole proprietorship, for example, the owner is personally liable for all debts in the business.

“Life insurance maintains and keeps the relationship viable,” says Allen. “It affects the ability to continue the business, and the ability to borrow money could be compromised if there’s a death with a key person.”

Life insurance comes in whole, term or universal forms. Allen is a proponent of term, which he says is inexpensive and allows the insured to lock in the term and receive a death benefit.

Partnership Insurance
In the case of a partnership, buy-sell agreements are valuable forms of insurance. Also known as partnership insurance, this allows a business owner to purchase shares of stock and continue running the business in the event of the death of his or her business partner. This agreement is funded with life insurance

Critical Illness Insurance
With this type of insurance, a policy holder is given a lump-sum payout if he or she is diagnosed with a critical illness outlined in the policy. Examples of frequently covered critical illnesses include Alzheimer’s disease, Parkinson’s syndrome and multiple sclerosis.

Key Person Insurance
Key person insurance protects a business when a key person dies. This insurance gives cash to keep the business running when this untimely event occurs. Disability insurance is also common. This allows a person to continue collecting income after injury or illness prevents that person from working.

“Cash solves 80 percent of all problems in a business,” Allen says.