Key person insurance is an insurance policy taken out by a business to compensate that business for financial losses that would arise from the death or disability of an important or crucial staff member. For example, if you have an employee who plays a key role in your organization… someone who would be “impossible to replace,” and that key person were to die or become disabled, there would be a tremendous business costs to recruit and train a replacement.
A buy-sell agreement is an agreement between business partners or shareholders. An insured buy-sell agreement is simply an agreement that is funded with life insurance. It is often recommended by attorneys and financial planners to ensure the business will continue if a partner dies. The proceeds from the life insurance policy can be used to buy out the deceased partner’s share of the business from the surviving families members.