5 Times Your Partnership May Need Key Person Insurance
Starting a business partnership with other entrepreneurs, friends, colleagues, or family is an exciting venture. It can be profitable for everyone. But you also need to minimize risk. One important way to do this is to have the right insurance. For many partnerships, this includes key person insurance. This is a form of life insurance where the partnership purchases for named individuals and is the beneficiary.
What sort of partnerships should have key person insurance? Here are a few situations you may fit into.
1. When Work Is Not Spread Evenly
Every partnership is set up and operated differently. The more the work is concentrated on a few individuals, the more you need insurance on these. Even if the rest can eventually pick up the slack, you may need to outsource work and there will be learning curves. Insurance helps pay for these extra expenses.
2. When One Person Has the Skills
Does your business rely on the skills of one or two partners? A three-person beer brewing partnership, for instance, might see one person handle the marketing, one the accounting, and one the brewing. The business may not be able to survive if those brewing skills are lost. This person should be insured.
3. When Your Skills are Niche
How easy would it be to find a replacement for one of the partners? A plumbing business might have a relatively easy time finding qualified replacement workers or new partners. But partners in a niche industry like underwater welding could find it difficult. Insurance keeps you afloat until you find someone with the right skills.
4. When You Must Buy Out Someone
One of the best uses for key person life insurance is so that the partnership can buy out that person's stake in the company. If you can't buy out their heirs, you may end up working with someone inexperienced or who doesn't want their inherited share.
5. When You Train Future Partners
Many partnerships reward valuable employees by grooming them to become eventual partners. But don't put that investment of time and energy at risk if something tragic happens to that key employee. Life insurance helps mitigate financial losses if you must start over training a new future partner.
Where to Start
Is your partnership in one of these categories? More than one? If so, learn more about how key person life insurance works. It may be one of the best investments you and your partners can make to keep your business thriving no matter what happens to any individual.
To find out more, contact a company like B & B Insurance Agency Inc.
