Whether you’re a sole proprietor or a partner in a business, you likely either have gone through the succession planning process, or it has been on your ever-growing to-do list. The name itself, SUCCESS-ion planning, is a pretty obvious indicator of why it is an important component of your business’s future — it is a plan for how your company will continue to operate successfully when an owner leaves…intentionally or not. While most business owners hope heading into their hard-earned golden years of retirement is the reason they will no longer be working, there are chances (more on that in a minute) their departure may not be that pleasant. That’s why planning for more unthinkable possibilities, like a debilitating injury or illness, and even premature death, needs to be well-thought out.
Succession plans create a solid foundation for business longevity beyond its current owners.
Succession planning, sometimes referred to as replacement planning, is a very thorough legally binding plan outlining processes and procedures for the continuation of a business after a shareholder leaves the company due to retirement, disability or death. Pre-planning, in partnership with other owners or leaders, helps everyone responsible for the company’s success understand the long-term vision of current leadership. It also offers some peace-of-mind to other stakeholders, like employees and each owner’s family, that if a situation occurs that unexpectedly takes a key leader away from work for an extended period of time, a plan is in place to keep the business, and the family’s living expenses, financially steady.
Some businesses may choose to create “Emergency Succession Plans,” which are specific to instances of sudden disability or death of an owner. This may be particularly useful for relatively young owners that have no plans of voluntarily leaving the company before retirement.
Regardless of the plan type, preparing for alternative succession of a business is valuable and especially important for businesses with two or more owners.
Businesses with two or more owners: succession planning is especially for you.
As a full-service insurance group, we advise many different types of businesses on the right coverage mix to best protect their companies. When asked about succession planning, many business owners give us an assuring nod that they have at least thought about it. The nod tends to abruptly stop and is replaced by a look of confusion when we ask what kind of Life or Disability insurance each partner has as a part of their succession plan.
If we could read minds, they are probably thinking, “Death is guaranteed, so ok, that makes sense. But I’m not sick, and I don’t take risks like I did as a teenager. Why would Disability insurance be a thing in a succession plan?”
Glad they asked. This isn’t fun to share, because let’s be honest, it applies to us as well, but here are some sobering facts:
- 1 out of 4 of today’s 20-year-old adults will experience a disability by the time they reach retirement age (67).
- 27% of American adults currently live with a physical or mental disability.
- Americans living with a disability are at risk for dying up to 20 years earlier than those without a disability.
Life and Disability insurance offers financial security for your business, business partners and your family.
Both a sudden death or a life-altering disability of a business owner creates a big risk for your business, not to mention your loved ones, in terms of financial stability. Utilizing Life and Disability policies to finance some areas of the plan makes the execution more affordable and less stressful. Let us explain.
There is generally no way of knowing how a future disability could affect your ability to continue working — it could take you out for a couple days, a few months or forever. That’s why having the right mix of Short- and Long-Term Disability coverage helps safeguard against financial disruptions of different lengths, bringing comfort, relief and efficiency during a time when you’ll most need it.
Consider:
- If you could no longer physically and/or mentally contribute to your workplace starting right now, could the business still operate at the same level for any length of time?
- Would you be able to continue paying for your (and your family’s, if applicable) living expenses in the short or long term without working?
- If you are a business partner, could the company continue operating at the same level without you? Would they need to hire someone to backfill your responsibilities until you return or even until you know whether you can return?
- If you have partners, do they have the financial capacity of purchasing your shares of the business if you are unable to come back or die, and would your family be able to step in to take care of the buy-sell process if you are unable to yourself?
In the case of serious disability or death of a co-owner, your succession plan will outline the pre-arranged agreement and Life and Long-Term policies are in place to finance the buyout for surviving owners to purchase shares from a disabled owner or an owner’s surviving family. This pre-arranged buy-sell agreement alleviates the potentially substantial amount of cash another owner may need in order to purchase their co-owner’s share. It also eliminates the need for an owner’s family to step in and handle the complexities of selling their loved one’s business shares. The insurance policies take care financing the transition of ownership, leaving business partners and families to focus on more immediate needs.
In cases where an owner is out temporarily, Short-Term, and some Long-Term Disability policies, help fill potential gaps in income, ensuring that your living expenses are covered while the business focuses on temporary hires or restructuring operations until you can return.
We work with your business attorney to ensure your succession plans include the right insurance coverage.
Our Life and Disability insurance advisors know how to work with your business attorney, or can refer to reputable business law firms, to help identify the right coverage to fit your unique business structure succession plan. Want to learn more? Contact us!
