March 1, 2014 9:42 AM IST
- A business – or an individual who owns a business – generally purchases life insurance products for one of two reasons:
- An individual life insurance policy can provide funds to ensure that the business continuesin the event of the death of an owner, partner, or key person.
- A business can purchase life insurance to provide benefits for its employees.
- Business Continuation Insurance:
- A business continuation insurance plan is an insurance plan designed to enable a business owner to provide for the business continued operation if the owner or a key person dies.
- A key person is any person or employee whose continued participation in the business is necessary to the success of the business and whose death would cause the business a significant financial loss.
- Any closely held business may need to establish a business continuation insurance plan in order to ensure that the business will continue if an owner or key employee dies.
- A closely held business is a sole proprietorship, a partnership, or a corporation that is owned by only few individuals.
- Buy – Sell Agreements:
- Liquidation is the process of selling off cash a business’ assets, and using that cash to pay the business debts; any funds remaining are then distributed to the owners of the business.
- A buy-sell agreement is an agreement in which
a) One party agrees to purchase the financial interest that a second party has in a business
following the second party’s death.
b) The second party agrees to direct his estate to sell his interest in the business to the
purchasing party.