|
Finding
someone to succeed the owner of your small business is a
difficult if not impossible task. Many small businesses
operate in a niche market. Others exist primarily due to the
expertise or contacts of the owner.
Therefore the assets of the business must be shielded from
the unexpected and premature death or disability of the
owner. Life insurance representing that portion of the
business that would be lost by the death of the business
owner can be protected with the purchase of a policy.
A
calculation would need to be made with regard to how long it
might take to find a successor. Additionally consideration
would be given to how much business (cash flow and net
profit) would be lost during the search for a successor. It
should be noted that certain corporations, limited
partnerships, and LLC’s sustain their corporate life after
the death of the top corporate executive. A sole
proprietorship, in the absence of a corporate designation,
no longer exists when the owner dies.
Disability insurance
should be taken out on the sole proprietor or top executive
with premiums paid by the corporation with benefits payable
to the corporation in the event of the disability of the
sole proprietor or top employee.
Key man
insurance or key woman insurance
should
be purchased by the employer and payable to the employer in
the event of the death or disability of a key employee. This
could be accomplished by the of either term insurance or
permanent life insurance depending on a number of factors
like the age, length of service and time to retirement of
the key employee. The revenues that would be lost as a
result of the death or disability of a key employee should
also be considered when making a decision to buy insurance
to shield the business from losses created by the demise of
a key employee
Often
when banks loan money to small businesses the bank requires
that the principals secure a life insurance policy. After
the principal gets the policy they are required to make the
bank an irrevocable beneficiary. That means that the insured
is powerless with regard to changing the beneficiary. The
beneficiary part of the life insurance contract specifies
who gets the money. Obviously the bank does not want to own
the business if the owner dies. Banks lend money and want
their money back, preferably with interest. (death not
withstanding)
When
banks lend money to small businesses they are calculating
that individual’s likelihood repay the loan. The insurance
is there because the bank does not want to run ‘your small
business” if you die. Additionally the banks know that
without you the business is not likely to continue to
operate.
In
another article I will talk to you about ways to groom and
mentor a successor to own your business after you retire.
Passing your business on to a successor does not necessarily
mean that you are now out of a career. You can sell your
business then work there as a senior consultant. The
government and corporate workers call that a double dip.
When they collect their pension and then go back to work, it
is like having your cake and eating it, too.
Selling
your business interest to a younger, more energetic,
well-chosen successor can literally save your life and help
your business continue. Chances are your successor is
already working for you. It is time you let him or her know
the plan while you’re still alive and well. That plan needs
to include funding your successor and contingency planning
in the event of your or her premature death or disability.
That’s
my time
Vince
Davis Insurance representing State Farm Insurance 712
Sherman at Cherry Toledo Ohio 43608 419-244-2904
|
