What happens to your business if you’re not there?

Published July 10, 2026 · By Erik Roti, Options.Health

Most business owners insure their building, their equipment, and their vehicles without a second thought. Far fewer insure the two things that can actually sink a business overnight: the loss of an owner, or the loss of the one person a business quietly depends on. Two tools cover those gaps, and they solve different problems.

Buy-sell agreements: what happens to a departing owner’s share

A buy-sell agreement is a legal contract between co-owners that spells out what happens to an owner’s share of the business if they die, become disabled, or otherwise exit. Without one, a deceased owner’s share typically passes to their spouse or estate — meaning the surviving owners could suddenly be in business with someone who has no interest in, or ability to help run, the company. Life insurance funds the buyout, so the agreement isn’t just a promise on paper; there’s actual cash available the day it’s needed.

Two ways to structure it

In a cross-purchase arrangement, each owner personally holds a policy on every other owner and uses the payout to buy that owner’s share directly. In an entity-purchase (redemption) arrangement, the business itself owns the policies and redeems the departing owner’s share. Cross-purchase tends to work better with two or three owners; redemption scales more easily with a larger group, since it avoids each owner needing a policy on every other owner. Which structure fits depends on the number of owners, the tax treatment each business prefers, and how the ownership percentages are split.

Key person coverage: insuring the person the business can’t easily replace

Key person insurance is a policy the business owns and pays for, on an owner or a critical employee whose loss would hit revenue, client relationships, or lending relationships hard. The business is the beneficiary, and the payout is meant to cover the real costs of that loss — recruiting and training a replacement, reassuring lenders or landlords who required that person’s personal guarantee, and keeping the business stable through the transition rather than scrambling.

Term or permanent — it depends on the purpose

Buy-sell funding and key person coverage are both commonly written as term life, matched to how long the exposure actually lasts — the length of a loan, the expected years until a planned ownership transition, or simply a level term long enough to cover the risk affordably. Permanent coverage comes into play when the need is genuinely indefinite, such as an owner who intends to hold their stake for decades, but it’s worth pricing both before assuming which one fits.