When a business owner dies, a multitude of potential issues can occur:
The surviving owners want to (1) either secure or keep control of the business without interference from the decedent’s heirs; (2) quickly transfer of the decedent’s interest at a reasonable price; and (3) maintain the allegiance and backing of employees, customers, and creditors during and after the transition in ownership.
The decedent’s heirs want (1) continuing financial security after the loss of the decedent’s salary and benefits; (2) either preservation of the business interest or a judicious sale at an appealing price; and(3) quick payment of the decedent’s estate (including proper tax valuation of the business interest, if they plan to sell it).
Key Person Life Insurance
Key person life insurance aids in repaying a business for economic loss when a key employee dies. While the insurance is covering the life of a key employee critical to the survival and success of the company, this type of policy is seen as a method in which to use life insurance as a mechanism to offset a business risk.
Key person life insurance can serve several uses benefiting a business—both during the key employee’s life and after the employee’s death.