Recent news about the sudden and tragic death of NBA superstar Kobe Bryant and 8 others in a helicopter crash triggers a lot of feelings — Of course sadness and remorse for the lives lost and families affected — But also a feeling of uncertainty for many.
Would your business or family be prepared if something truly unexpected like an accident or sudden illness happened to you? What if you were no longer able to work, run your company or contribute necessary vital functions to your business?
It’s always a good idea to do periodic reviews of your personal insurance coverage, estate planning situation and financial arrangements to ensure that your family or loved ones are protected in case of emergency. Once a year, pull out any life insurance policies, health insurance, home policies and review things like coverage levels to ensure those impacted would have enough money to cover their needs, regardless of the circumstance.
While reviewing personal coverage needs, take some time to review how your business is covered. You may have general liability, damage or workers compensation insurance, but have you thought beyond?
This is a good time to check in with your broker to see if it makes sense to add additional products or plans that could provide protection if something were to happen to you/key executives making regular operations of your business impossible:
A buy-sell agreement is another way of phrasing a buyout option. You may have heard of buyouts when business owners choose to part ways or retire, but were you aware you can protect your business if a key executive or owner dies or is forced to retire? What about in a case of divorce or personal bankruptcy?
Simply put, a buy-sell agreement is a written, binding statement between all interested parties (owners) about who can buy into/purchase shares of parts of a business owned by others. These plans can also dictate how those funds are generated, for example, using a term life insurance policy that can pay for an existing owner’s buyout of another share if a business partner dies.
When planning the right life insurance policy to fund a buy-sell agreement, there are several factors that come into play that could dictate the type of product selected such as individual member’s ages, overall health and underlying factors such as existing disabilities or diagnosis. Beyond insurance policies, there are several other tactics such as advance fund designation, (set aside funds potentially funded via corporate profits) or traditional business loans. Work with your broker and attorney to determine the right funding option for your buy-sell agreement.
Most buy-sell agreements will contain specific details relating to succession processes, determining the value of both the company and an owner’s share and terms for buyouts and tax implications. Working with your broker, determine if a term life insurance policy on various owners is a good way to fund this sort of plan and then talk to your attorney about the necessary legal structure to ensure tax compliance and equity throughout the process.
It’s important to also consider all elements of your business or professional life that would be impacted if something sudden and tragic were to happen. In the recent news relating to Kobe Bryant, you have a situation of not only personal loss but also losing a business leader, foundation head, public figure and brand icon. If you are involved on other boards of directors or serve in an essential advisory capacity to another company or even a charitable foundation, it’s important to address any succession plans for those as well — speak to your broker and attorney to learn more and puts steps in place to expect for the unexpected.
