As a means of helping to ensure the continued function of a company in the event that a key person within the organization dies, business life insurance provides coverage that can help make a difficult situation easier to manage. The purpose of business life insurance can assist the company with the wide range of factors that arise when an owner or a key executive is no longer around to handle his or her usual responsibilities.
Essentially, business life insurance can be thought of in terms of being key person insurance. By insuring the life of persons who are critical to the life of the company, it is possible to safeguard against the unexpected demise of an individual who possesses a skill set that is foundational to the success and ongoing life of the company. While business life insurance cannot completely fill the gap left by the death of a valued member of the organization, life insurance coverage will provide the corporation with financial resources that can be applied to the expanses associated with finding and training a new employee. Business life insurance proceeds can also be used to cover the expenses of obtaining consultants and other temporary services that will assist the company in continuing to operate in the short term.
Business life insurance can be especially important to smaller companies, especially partnerships and sole proprietorships. In these situations, business life insurance can help the surviving partner or the beneficiaries of the deceased proprietor have resources to keep the business on an even keel. The additional resources will buy the survivors time to make decisions about the future disposition of the company. This may come in the form of outsourcing functions short term or training someone to step in and take over the necessary functions. The resources provided by business life insurance provide time for decisions to be made about whether to continue operations, put the business up for sale, or to shut down the company and sell the assets.
In terms of cost, business life insurance is usually available at annual rates that amount to a small fraction of total death benefit. As an added incentive, the total death benefit is usually excluded from federal income tax obligations.