BUSINESS SUCCESSION PLANNING AND THE USE OF LIFE INSURANCE There are a number of primary uses for Life Insurance in the structuring of any business succession plan, which protect a shareholder of a company from problems such as Death, Liquidity and Liabilities that may occur.

In the context of business succession planning, life insurance is used in four principal aspects:

FOR THE BUY-OUT OF A SHAREHOLDER ON DEATH
Shareholders in an operating company tend to have a buy-sell agreement, which protects their interest. That agreement may stipulate, among other things, that the surviving shareholder will buy the shares of the deceased partner from the spouse or estate in the event of death. The funding of this buy out becomes much easier with a Life Insurance Policy.

DEATH OF A KEY EMPLOYEE
An employer may wish to protect their business in the event of the death of a key employee. The death of a key employee may cause the business to experience diminished profits, costs with regard to hiring a replacement, and costs with regard to interruption in the normal operation of that business. Purchasing a Term Insurance Policy helps deal with the financial burden brought about by the untimely death of a key employee.

BUSINESS LIABILITIES
In the untimely death of a shareholder the surviving shareholder may need to protect the company from its creditors. With a Life Insurance Policy the surviving shareholder can settle with the creditors and avoid any disruption in the company's current and future growth.

LIQUIDITY A business owner may require a need for cash. They could use a Life Insurance Policy assigning it as collateral for a loan from a Financial Institution.

These four principal aspects of business succession planning are of great importance to the shareholders. The shareholder must always be prepared to solve any problems that can arise. It is always best to be prepared in advance.