Business Continuation
What is Business Continuation?
Simply put, business
continuation planning is developing and implementing
a plan of succession. Through what is usually called
a Buy-Sell Agreement, Proper business continuation
planning will determine who will take over your
business if you die prematurely, become disabled or
retire.
Ensuring the continuation of your business with a
properly drafted Buy-Sell Agreement will provide
more than just a mechanism for transferring the
business. It may save you thousands of dollars --
and hours -- by eliminating the costs, delays and
frustration of IRS contests and litigation. When
properly drafted, a Buy-Sell Agreement will
establish the value of a business for the purposes
of federal estate and gift taxes.
Business continuation
insurance is a policy that a business will take out
on the lives of employees or individuals associated
with the company whose death would seriously impact
the business’s ability to continue operations. It
could be an insurance policy on either male or
female lives and is usually taken out on those who
play a role in the essential management, marketing,
financial or legal expertise within the company.
The principle behind business continuation insurance
is to replace any economic losses the business could
sustain as a result of the death of one or more of
these persons. It usually includes clauses related
to ownership buyouts or transfers and for various
situations involving estates and beneficiaries.
There is permanent insurance on the life of the
named insured people, which means they are covered
for life and not for a specific period of time.
The premiums for this type of business insurance
must be paid as long as the insurance is in effect
and there are various costs involved. The cost of
the premiums depend on the health condition of the
insured, whether or not he/she smokes or consumes
alcohol and, of course, the amount of the life
insurance. There is quite an extensive medical
questionnaire that has to be completed and a
physical by a doctor will be required. However, once
a policy is in place, there will not be any further
questionnaires or examinations needed.
In such business continuation policies a portion of
the premium is paid into a value tax cash
accumulation account. The company also issues
dividends, which are also paid into this account.
There must be a named insurer, a named insured and
designated beneficiaries. Although these three names
can be the same person, this is usually not the
case. The insurer is usually someone of importance
within the company who has a vested interest in
ensuring that the company continues in operation.
