Should life insurance be in your business succession plan?

Life insurance can be an important way to protect your loved ones if something were to happen to you. But that's just one role it can play in your financial strategy. An often overlooked use of life insurance is business succession planning. Here are three situations where this strategy might make sense.

1. Ensuring a successful transition from one owner to the next

An insurance policy with a buy/sell agreement can provide liquidity for you to buy out a deceased partner's share of the business – helping reduce business interruption. This strategy can help provide more certainty on the "when" and "how" of ownership transition. A term or permanent insurance policy could be used in this situation.

2. Protecting the business from the loss of a key employee or top performer

Are you concerned about losing a high-producing employee or partner and the significant impact that loss could have on your business? Having an insurance policy on that person, known as key person insurance, could help the business recover financially. A term or permanent insurance policy can be used in this situation.

3. Leaving a business to one heir while leaving an equivalent amount to others

Maybe you have a loved one who is more interested in running the business than others, but you want to treat all heirs fairly. It's hard to split a business evenly among beneficiaries. Permanent insurance can help you leave the business to one heir and cash equivalents to the others.

Are these insurance strategies right for you?
Every business is as unique as your goals for it. Before you make any decisions about using life insurance for a business succession plan, be sure to discuss it with your financial advisor, attorney and tax professional.