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business continuation insurance 101

Business Continuation Insurance 101

September 12, 2022


Business Continuation Insurance 101: What happens to my business if I can no longer run it?

No one likes to think about the worst-case scenarios, especially when it pertains to all our hard work, our struggles, our invested time and money. As a business owner, it’s a necessity, especially if we want to guarantee the continued survival of our business. So, what happens to a business if the business owner dies, becomes divorced (in the case of a business between partners), or becomes disabled? The answer largely depends on your business and what business continuity plans you have in place prior to the event. In this blog post, we’ll go over the details and how to be prepared in order to ensure your business’s continued success for years to come.

Hitchings Insurance Agency can help you navigate business continuity plans, as well as your coverage options for business continuation insurance to aid in preserving your business against the unforeseen. Give us a call today to discuss your options on how to best control the ownership of your business in the event of an unexpected circumstance.

What is business continuation insurance?

Business continuation insurance is a type of insurance product – falling under the scope of both disability and life – that is designed to cover unexpected losses in the event that a business owner, a key employee, or their partner should become unable to do business due to a disability or death. This plan will provide the compensation that a business may require in order to significantly reduce disruption and maintain its operations. This also helps a business to adhere to its succession strategies, as would be laid out and established in a business continuity plan. Business continuation insurance is used to significantly reduce the stress a business may experience due to the loss of an executive, key employee, or even its owner, as well as any consequential financial difficulties associated with training, recouping, and to compensate for any disruptions that the death or disability might cause.

How to create a successful business continuity plan

Business continuity plans aren’t just helpful in the event that your business should suffer a change in leadership. Business continuity plans will also help to outline what to do after your organization faces an unexpected disaster, such as a fire, a flood, a data breach, or the death/disability/divorce of your business’s executive, key employees, and/or the business owner.

Business continuity insurance is just one part of a successful, effective business continuity plan. The skeleton of your business continuity plan should include five major points:

  • Identifying your business’s critical operations
  • Identifying your key business areas
  • Identifying the relationships and dependencies between areas and operations
  • Calculating what an “acceptable” amount of downtime would be for each critical operation
  • Determining a plan on how to maintain your operations, based on priority

This, of course, is only just the tip of the iceberg. You’ll also want to create a comprehensive inventory list of all your supplies and equipment. In addition, make sure you create a checklist that labels and includes the locations of all your backup sites, data backups, and all the key employees who have this information.

Include a list of contact information for relevant emergency responders, backup site venues, and key personnel. This is the start of your plan, which focuses on determining the most vulnerable areas of your business and what the potential losses could be if they are down for a few days or longer.

Now what? It’s time to test your plan. You can do so via a tabletop exercise. This would involve looking over your plan with a team and assessing for gaps, or in a walkthrough of a hypothetical disaster.

As your business expands and grows, it doesn’t hurt to continually review your business continuity – even annually – if you think that might be what you need. Risks change. You add more people to your team. Technology updates. Use the feedback from your team to update your team and keep it as solid as possible, so you can get back to normal if a disaster ever does occur.

What happens in the event of a business owner’s death or disability?

It depends on the business. With sole proprietorships, the business is generally terminated upon the owner’s death, and any assets of that business will then become a part of the owner’s overall “estate.” If there is a general partnership, the continuation of the business is determined by the surviving partner.

For corporations or proper entities, the business continues to exist, and ownership will be maintained. Any of the business owner’s interests and stock will be transferred in accordance with their Will.

That being said, business owners can take steps to prevent significant issues for their business following an unexpected death or disability. Owners can create what is known as a BSA or buy-sell agreement. BSA regulates the transfer of business ownership interests and ensures that transfer can occur smoothly and fairly. In the event of a divorce (so long as the spouse actually owns a stake in their partner’s business – as marriage does not make the individual a co-owner without any actual ownership) they also ensure that owners are aware of and can control the impact of such a situation on the business and mitigate any chance of disputes.

Business owners should also consider creating a Will and/or some other estate planning tool to ensure that interests are transferred in a manner that meets the person’s goals and guarantees that transfers will only be conducted in a way that the business owner desires.

Taking the time to plan for business continuation, even when it involves thinking about such things as a death, a disability, or even a divorce, is stressful but altogether necessary. You put too much time, money, and effort into your enterprise for it to go to waste. Even in the event of your death, you want your business to go on – and you’ll want it to be possible for your business partners and loved ones to carry on with a seamless transition even if such a terrible thing ever did occur.

The insurance professionals at Hitchings Insurance Agency can help walk you through what this continuation coverage looks like for your business. It’s quick to get started. Just click below and provide us with some additional information to begin the conversation!