Business Continuation Insurance

Business continuation insurance is a type of life and disability insurance that covers losses if a key executive, owner, or partner of a business dies or becomes disabled.

The insurance provides funds that the business would need to minimize disruption so it can continue its operations. It also helps businesses adopt and adhere to a specific succession strategy in the event of losing a key employee.

Business continuation insurance has two common types: entity-purchase and cross-purchase policies. Entity-purchase policies name the business itself as beneficiary of the policy. A cross-purchase policy covers specific individual business owners and partners, each of whom receives benefits directly under the terms of the policy.

The death or disablement of a key executive can cause stress and financial difficulties. In some cases, the lack of clear leadership and business struggles can create disruption so severe that the business may fail.

Business continuation insurance combines life and disability insurance so that other partners or owners can plan ahead, knowing they can acquire that executive’s share of the business under a clear succession plan without misunderstandings or undue conflict over who will continue to lead operations.

Combined with clear buy-sell agreements, business continuity insurance can help businesses with multiple owners and partners maintain an orderly succession strategy. Such insurance also addresses the need to be sure that the portion of a business owned by one person can be purchased by other partners or owners. Otherwise the ownership may be passed on to key executive’s heirs.

Various forms of business continuity insurance include term life or whole life insurance policies that name specific individuals who would purchase the business as beneficiaries. Disability policies can also be used for that purpose. In other cases, the policy names a business itself as beneficiary so the business entity can buy its own equity.

Yet it is not just the loss of an owner of a business that can cause disruption. Life insurance and disability insurance can mitigate losses for any person vital to the operation of a business, even if they do not own a share of it.

A software company, for example, might determine that the loss of a senior programmer could cause so much disruption that it is valuable to insure against the loss of their services. This type of insurance, however, does not typically come with buy-sell agreements as is often the case when insuring an owner or partner.