Under a key person life insurance policy, the business owns the policy, pays the premiums and is the beneficiary. If a key person dies, the business then collects a death benefit. That money can be used to help a business replace lost revenue as they search for a replacement.
If you own a business where there is more than one owner and the business will be impacted by the death of one of the owners one can take key person insurance to ensure that the business still has cash flow to help with the impact of the passing away of the other owner.
Buy and sell
Buy and sell insurance is an insurance that business co-owners take out on one another’s lives to enable them to buy a deceased or disabled co-owner’s share in the business, and secure the future ownership of the business.
This insurance helps with the buy and sell of shares after death. Let’s say you pass away and your shares then goes to your wife/husband or children, your business partner will then receive a lump sum after your passing. Then because there is a contract in place, this amount must then be used to buy out the shares received by your beneficiary. This will ensure that your beneficiary is compensated for the shares received and the business partner then owns a bigger percentage of shares.
Contingent liabilities are possible obligations whose existence will be confirmed by uncertain future events that are not wholly within the control of the entity. For example if there is a lot of debt in the business, this poses a major problem if one shareholder should pass away. Contingent liability insurance helps you pay these debts off.