Business Continuation Insurance
Business continuation insurance is life insurance purchased by a business to protect against financial losses that occur when a key person (owner, partner, or essential employee) dies or becomes disabled. It provides funds to keep the business operating during the transition period or to facilitate the buyout of a deceased partner's share.
Example
“The law firm purchased $500,000 in business continuation insurance on each partner to ensure the practice could continue operating if one of them unexpectedly died.”
Memory Tip
Think 'Continue the Company' - this insurance helps the business continue when key people can't.
Why It Matters
When a business owner or key employee dies, companies often face immediate cash flow problems, loss of credit, and operational disruptions that can lead to business failure. Business continuation insurance provides immediate liquidity to cover debts, payroll, and operating expenses while the business transitions or finds replacement leadership.
Common Misconception
Many small business owners think their personal life insurance will be sufficient to protect their business, but personal policies pay benefits to families, not the business. Business continuation insurance specifically pays the business entity and can be structured to fund buy-sell agreements or maintain operations.
In Practice
ABC Manufacturing, owned equally by three partners, has a buy-sell agreement funded by $300,000 business continuation insurance policies on each partner. When Partner A dies unexpectedly, the insurance pays $300,000 to the business, which then uses these funds to buy Partner A's one-third ownership from his estate. This allows the remaining partners to maintain control while providing fair compensation to the deceased partner's family.
Etymology
The term evolved from business succession planning practices in the early 20th century, combining 'continuation' from Latin 'continuare' meaning 'to continue without interruption' with modern insurance concepts.
Common Misspellings
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Related Terms
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