Planning for the unexpected: How life and disability insurance can safeguard your business

Running a business comes with a long list of responsibilities – and risks. From day-to-day operations to long-term strategy, business owners are constantly juggling priorities. Unfortunately, one area that often gets overlooked is planning for the unexpected.

What would happen if you became seriously ill, hurt or passed away? Without a plan in place, the business you’ve worked so hard to build could face major disruptions, financial strain or even collapse. That’s why incorporating life and disability insurance into your planning can be transformative and help overcome your financial fears. These insurance tools play a pivotal role in supporting business transitions, offering financial stability during uncertain times.

Let’s take a closer look at how life and disability insurance can strengthen your risk mitigation strategy and complement your broader business planning efforts.

Don’t miss: Our guide to help ensure your business – and your legacy – are protected after you’re gone.

Protecting against financial uncertainty

If a business owner passes away or becomes disabled unexpectedly, the financial impact can be immediate and severe. Life insurance provides a lump-sum payout to help cover expenses upon death, while disability insurance offers ongoing income replacement if the owner is unable to work.

Business overhead expense insurance is another valuable tool – it helps cover essential operating costs like payroll, rent and utilities during an owner’s disability. These funds can keep operations running and prevent financial losses.

For businesses carrying significant debt, insurance proceeds can be used to pay down liabilities, easing the financial burden and helping avoid liquidation or bankruptcy. This financial cushion allows the business to continue operating during challenging times.

Supporting buy-sell agreements

A buy-sell agreement is a legally binding contract that outlines what happens to an owner’s share of the business if they die, become disabled or depart the organization. Life and disability insurance can fund these agreements, ensuring the remaining owners have the resources to buy out the affected owner’s share.

Typically, successors may not have the financial means to support the owner’s estate while continuing business operations. A funded buy-sell agreement helps maintain continuity, prevents disputes and makes sure the business remains in trusted hands. For family-owned or closely held businesses, it can also prevent outside sales and ensure the owner’s family is compensated fairly.

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Providing for family members

Life and disability insurance aren’t just about safeguarding the business – they’re also about financially protecting the owner’s family. Policy payouts can help cover living expenses, education costs and other financial obligations. Having that support gives families time to make thoughtful decisions about their future, without the added stress of financial uncertainty.

Attracting and retaining key employees

Key person insurance is a policy taken out by a business on its most critical employees. If a key team member becomes disabled or dies, the policy provides funds to help the business manage the transition – whether through recruitment, training or offsetting lost revenue.

This type of coverage also boosts confidence among creditors and investors. Offering such benefits can be a competitive advantage in attracting and retaining top talent, especially in today’s tight labor market.

Enhancing creditworthiness

Having life and disability insurance in place signals to lenders and investors that your business is thinking ahead. It demonstrates a commitment to continuity and risk management, which can improve creditworthiness and make it easier to secure financing or attract new investments.

Simplifying estate planning

Estate planning for business owners can be complex. However, life insurance helps simplify things by providing liquidity to cover estate taxes and other obligations.

For family-owned businesses, it can also help equalize inheritances among heirs – ensuring fair distribution while keeping the business in the hands of the active heir. Without this planning, families may be forced to sell or liquidate the business quickly, often at a lower value.

Note: In the 2024 case of Estate of Connelly v. United States, the Supreme Court ruled that a corporation’s value for estate tax purposes includes the value of life insurance death benefits paid to the corporation upon a shareholder’s death¹.

Integrating life and disability insurance into your business continuity strategy

Here are a few steps to consider to help you get started:

Conduct a risk assessment: Identify key individuals whose absence would significantly impact the business and evaluate the financial implications.

Consult with professionals: Work with your wealth and insurance advisors to determine appropriate coverage levels and tailor policies to your business’ needs. Insurance policies are often put in place when a business is just getting started. However, as the business grows, the original coverage may become significantly inadequate.

Establish and fund buy-sell agreements: Make sure legal agreements are in place and regularly updated to reflect changes in business value, ownership structure and tax laws.

Educate and train successors: Prepare future leaders through development programs and ensure they understand the role of insurance in business continuity.

Review policies regularly: As your business evolves, reassess your insurance needs and adjust coverage to reflect changes in valuation, personnel and risk exposure.

Taking the next step

Life and disability insurance are more than just safety nets – they’re strategic tools that help protect your business, your family and your legacy. Using insurance to protect your business can be looked at as another type of investment, like other equities, a fixed income or cash. By proactively incorporating these products into your financial planning, you can reduce risk and create a more stable future.

If you’d like help navigating your insurance options, contact your Huntington team or find a location near you. We offer a fully independent insurance brokerage to help you explore solutions that align with your financial strategy and business goals.