Employee Assistance Program
Why Your Business Might Need Key Person Life Insurance
If the unexpected loss of a founder, executive, or top producer would significantly disrupt your operations, your business may need
Key Person Life Insurance. This type of policy provides a financial cushion, allowing you to manage immediate costs like recruiting a replacement, covering operational gaps, or reassuring stakeholders. For small to mid-sized companies, especially those with lean leadership teams, this insurance can be the difference between recovery and closure.
How a Buy-Sell Policy Can Fund Your Agreement
A well-drafted buy-sell agreement outlines how ownership shares in a business will be handled in the event of a partner’s death, disability, or departure. However, having the agreement alone isn’t enough, it must be backed by funding to be effective.
That’s where Buy-Sell Life Insurance comes in. Once your legal team has prepared a buy-sell agreement, AEIS can help you put the proper life insurance policy in place to fund it. These policies are structured so that if a business owner passes away, the insurance proceeds go to the surviving owner(s) or the business itself depending on the agreement, providing the funds necessary to buy out the deceased partner’s share.
This approach ensures a smooth ownership transition, protects the business from liquidity issues, and honors the financial interest of the deceased partner’s heirs.
AEIS does not draft buy-sell agreements but we specialize in sourcing and implementing the appropriate life insurance policies once your legal foundation is in place. By working closely with your attorneys and CPAs, we help ensure your business continuity plan is not only legally sound but financially secure.
Key Person Insurance vs. Buy-Sell Insurance: What’s Right for You?
Key Person Life Insurance
Key person life insurance protects the business itself. The company owns the policy, pays the premiums, and receives the death benefit if a covered key employee or executive passes away. This coverage provides the financial stability needed to hire a replacement, manage revenue disruption, and reassure clients and investors.
This type of policy is not limited to owners. Many businesses choose to cover high-impact contributors or “rainmakers” who are essential to sales, operations, or product development even if they don’t hold ownership equity. Protecting this talent helps safeguard continuity and business value.
Buy-Sell Life Insurance
Buy-sell life insurance, on the other hand, is designed to fund a buy-sell agreement between business partners and owners. If one partner or owner passes away, the policy pays out so that the remaining owner or owners can purchase the deceased partner’s interest in the business. It ensures a smooth ownership transition and supports the financial well-being of the deceased partner’s heirs.
Can You Have Both?
Yes, and in many cases, you should. Two business partners may each have buy-sell life insurance policies in place to fund their agreement. At the same time, the company might also take out key person policies on those same individuals to cover operational losses during a transition period.
Additionally, key person policies can be purchased on employees who are not owners but are critical to the company’s revenue or intellectual property.
Having both policies in place strengthens your business from both an operational and ownership continuity perspective.
How AEIS, Inc. Help Businesses Choose the Right Insurance Plan
At AEIS, Inc., we help California-based business owners assess risk, plan for the unexpected, and protect their company’s future. Our consultative approach ensures you choose the right mix of protection—whether that’s key person insurance, a buy-sell agreement with funded policies, or a combination of both.
We collaborate closely with your attorney and CPA team to make sure your coverage aligns with your corporate structure, tax considerations, and long-term goals. Our recommendations are never one-size-fits-all—they’re designed around your unique business landscape.
