insurance

Business Continuation Insurance

Life insurance purchased by business partners or the business itself to fund buy-sell agreements when an owner dies or becomes disabled. This ensures the business can continue operating by providing funds to buy out the deceased or disabled owner's share.

Example

“The three partners in the accounting firm each carried $500,000 in business continuation insurance to fund their buy-sell agreement in case one partner died unexpectedly.”

Memory Tip

Remember 'Business Continuation = Keeping Company going after Crisis' - all C words that represent maintaining operations during transitions.

Why It Matters

Without proper funding, the death of a business owner can force the sale of the entire business at below-market prices or create conflicts between surviving owners and the deceased owner's family. Business continuation insurance provides immediate liquidity to execute predetermined agreements, preserving jobs and business value.

Common Misconception

Many business owners assume their regular life insurance will handle business needs, but personal life insurance proceeds go to beneficiaries who may have no obligation to sell their inherited business interest. Business continuation insurance is specifically structured and owned to fund business buy-sell agreements with clear legal obligations.

In Practice

Three partners each own 33% of a $3 million software company and have a buy-sell agreement funded by business continuation insurance. Each partner has a $1 million policy with the other two as beneficiaries. When Partner A dies, his $1 million in insurance proceeds are used to purchase his third of the business from his estate at the predetermined $1 million valuation. The surviving partners now each own 50% of the company, and Partner A's family receives $1 million in cash rather than an illiquid business interest.

Etymology

The term evolved from 'continuation,' meaning to carry forward without interruption, combined with business insurance practices that developed in the early 20th century as partnerships became more complex.

Common Misspellings

business continueation insurancebusiness continuation insurencebusiness continuation insuransebuisness continuation insurance

Related Terms

Key Person Insurance

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