The loss of critical personnel can be life threatening to a small business; however, it is a risk that life insurance often can mitigate.

Life insurance policies are frequently used in plans aimed at making it possible for a business to survive a change of ownership or the loss of a chief executive, partner, or other person whose talent drives the operation. Typically, the insurance funds a buy-sell agreement that provides for the orderly transfer of ownership interests and compensates for the loss of a key person.

A buy-sell agreement allows the remaining owners to acquire the interest of a withdrawing owner due to death or another specified event, such as disability or retirement. The agreement typically restricts the owner’s ability to transfer his or her interest and sets out the terms under which another owner may acquire the departing owner’s interest.