Business owner protection
Protection arranged around a business
When income comes from a business rather than a salary, protection, tax and succession stop being separate questions. The business is often the largest asset in the picture and the hardest to turn into money quickly.
Worth knowing: What happens to the company is usually the conversation underneath the insurance one.
Key person cover
Insurance on someone the business depends on, owned and paid for by the business and paying the business. It buys time: to replace the person, to reassure lenders and customers, and to avoid decisions made under pressure.
The amount is usually reasoned from what the absence would cost — lost revenue, recruitment, the cost of a transition — rather than from the person's salary.
Funding an agreement between owners
Where two or more people own a business, an agreement usually sets out what happens if one of them dies: the survivors buy the departing owner's share, and the family receives money rather than a stake in a business they may not want to run.
Insurance is what funds that purchase at the moment it is needed. The agreement and the policy have to say the same thing, which is why the lawyer drafting one and the advisor arranging the other need to be talking to each other.
Who owns the policy matters
Personally owned and corporately owned policies are taxed differently, and the choice affects who receives the money, how premiums are funded and what happens to the proceeds.
This is genuinely accountant territory. Any structure involving a corporation should be confirmed with the person who files the returns before anything is arranged.
What usually gets missed
Personal guarantees. Many owners have personally guaranteed a lease, a loan or a line of credit, which makes a business debt a family debt as well. That obligation rarely appears in a personal coverage calculation.
Questions people ask
Is key person insurance deductible?
Premiums are generally not deductible, and treatment depends on the arrangement. That is a question for your accountant on the specific structure rather than a general rule.
What if the shareholders' agreement is out of date?
It is common. An agreement written for a business of a different size, or for owners who have since changed, is worth revisiting before deciding what any insurance should do.
Does this apply to a sole owner?
The buy-sell question doesn't, but the debt and the personal guarantees usually do, and so does the question of what happens to the business itself.