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Key Person Insurance


If an owner of a business dies, or is incapacitated, there should a plan to manage the orderly transfer of ownership when the estate of the owner is either incapable, or unwilling, to assume the responsibilities of the business and instead wants to sell their share of the business and move on.

In this common situation, it is wise to first have a buy/sell agreement in place which details the circumstances or events that trigger the buy/sell options. The agreement would also ideally detail the valuation methodology that is to determine the value of the shares.

The next important consideration is to determine how the funding for the purchase of the shares will be arranged. A common and cost-effective solution is to buy insurance (life, total and permanent disability and trauma) on the owners of the business.

This solution is also used to help repay any outstanding debt and to release the owner (and hence the estate) from any personal guarantees such as lease or rental costs.