by JQ Adams

Created on: April 17, 2009

Do you own a small business? Do you have one or more business partners? Have you stopped to think about exactly what would happen to the business if one of your partners was no longer living? While no one wants to think that anything will ever happen to them or their business partners or loved ones, it's a fact of life that no one lives forever. If one of your partners is no longer around, separate from the emotional consequences of losing someone you care about, you're also likely to find yourself dealing with major financial implications for the business.

This is why it's so important to make sure that you have sufficient key person insurance coverage in place for your small business. No matter how small or how new your business is, each partner should be covered by a sufficient amount of life insurance. Only you and your partners can make a determination of exactly how much insurance coverage is sufficient in your particular situation. Before making a decision, think about what the financial implications of losing one of the partners will be for the company.

If you have a buy-sell stock agreement in place, the business is going to have to come up with the money to purchase the deceased partners stock shares from his or her estate. Most small business operations don't have large sums of cash lying around, so it's important to make sure that the insurance policy will at least cover the cost of any necessary share repurchase, as specified in the terms of your particular buy-sell agreement.

However, this isn't the only important factor you'll need to consider. If one of your partners is no longer there, who will perform that person's duties and responsibilities? It's not likely that the other partners are going to have the necessary skills and/or time to take on everything the deceased individual once handled. That means the remaining partners will need access to money so they can recruit and hire someone to handle that portion of the business. Some of the life insurance proceeds, assuming there is sufficient coverage, can be used to offset this expense.

In many cases, business partners also put enough insurance in place to provide protection for their families. Often, entrepreneurs invest all their available resources into getting their business ventures up and running. A portion of the business owner life insurance policies may be earmarked to go to the deceased person's family members in the event of a worst case scenario. Regardless of how the policy proceeds are likely to be used, it's certainly important to make sure that each owner is covered by a life insurance policy.

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