D&O Management Liability Insurance

Ensure business continuity for effective management liability.

At BKS Partners, our D&O management liability insurance helps safeguard your organization from a variety of business risks. Our expert solutions protect your directors, officers, and management from devastating financial fallout during difficult transitions. ​

Do you remember the last time you looked at your company’s buy/sell agreement?

Probably not and we get it—realistically it’s not the most riveting document you’ve ever set eyes upon, but understanding your arrangement is the first step to ensuring business continuity.

What is a buy/sell agreement?

A buy/sell agreement is a contractual obligation between shareholders and their corporation or between a single shareholder and the other shareholders of the corporation that proactively addresses a myriad of known and unknown events. This agreement determines the fate of the company stock in the instance of a triggering event, such as ownership transition, retirement, death, or disability of a shareholder. A well-constructed buy/sell agreement mitigates multiple estate planning problems for the entity owner and serves as a comprehensive guide to protect and preserve the business.

Depending on the business type, number of shareholders, and company stage (e.g., growth or mature stage), buy/sell agreements are structured in various forms:

  • Cross purchase
  • Entity purchase
  • Stock redemption
  • Unilateral or one-way
  • Wait-and-see plan deferred compensation strategies

When times are tough, navigating your insurance doesn’t have to be.

When the tides get high, hold on! Our proactive approach to business continuity provides a solid strategy to maximize financial return and minimize tax liability.

Here’s an overview of our deep-dive approach into your business continuity plan:

  • Evaluate your company’s buy/sell agreement to search for potential coverage gaps and ensure what you need, you have.
  • Utilize our network of over 20 reputable carriers to get you the highest quality coverage at the lowest price.
  • Plan the transference of ownership in the event of an untimely departure of a shareholder and unearth potential areas of conflict amongst heirs of the deceased and other business owners.
  • Ensure the value that key employees provide to the company is matched with appropriate coverage value.

What is key person life insurance?

Think of a key person as the equivalent of the ‘golden goose’ of a company. This golden goose may be a partner, majority stockholder, or possess an expertise unmatched by anyone else in the company. When things go according to plan, such as this key individual retires or resigns, it’s easy to minimize the impact. But if the key person dies or is in a debilitating accident, financial risks come crawling out of the shadows.

Who is a key person?

While mom thinks we’re all great, in terms of management liability, a key person:

  • Is critical to the livelihood of the business and actively works fulltime. *
  • Does not own more than 50% of the business. **
  • Makes a minimum of $30,000 per year.
  • Is not a government or seasonal employee.

*Works at least 30 hours a week in a key person position and has held that position for at least 12 months. Employee can only be insured as a key person under one business entity.

**If the insured is an owner, the business must be in operation for at least one year for fee-for-service businesses and three years for all others.

If your organization employs individuals vital to its success, you may want to consider this coverage for peace of mind knowing that your colleagues, investors, and lenders are protected.

  • Premiums are based on key employee’s age and medical history.
  • The company applies for and owns the policy, making them the beneficiary if the key person dies prematurely.
  • Policy offers tax-free funds to acquire, hire, and train a replacement employee, as well as compensate for lost business during the transition.
  • Key person life insurance can also be used to buy out the key person’s shares in the company or be given as a retirement benefit.
  • Easily implemented and minimal maintenance—the IRS only requires one annual report on this policy.
  • The use of funds is flexible.
  • Life insurance benefits are paid to the company tax-free.
  • Clients, creditors, lenders, and stockholders can rest easy knowing that a solid business continuity plan is in place.
  • Create a business continuity plan to outline future business functions in the event of a key employee departure.
  • Estimate the value of your key employee. What projects will be lost? How much does this person generate in sales? How much revenue will be lost? How long do you anticipate hunting for a replacement?

Critical injury can also throw a wrench in your business’ success. Prepare for the possibilities.

If your business’ key person is rendered completely disabled, key person replacement (KPR) insurance is a valuable tool in mitigating financial depletions during this transition. This coverage is particularly valuable for small to medium sized businesses with highly specialized employees who are not easily replaced.

The company pays the premium and owns the policy that insures the key person in the event of total disability. If the key person is rendered completely disabled, the company receives benefits—usually tax free.

To qualify for total disability, the insured must be unable to perform the substantial and material duties of his/her key person occupation and must not be working in any other occupation comparable in duties or earnings for the business.

Consider purchasing KPR insurance if:

    • Your key employee’s disability could lead to:
      • Loss of management and expertise.
      • Disruption of business.
      • Increased expenses from hiring or training a replacement.
    • You need to demonstrate financial stability to creditors and clients.

Providing the key employee meets the definition of total disability, depending how the policy is structured, the policy owner receives either a lump sum payment or a combination of monthly and lump sum payments.

Change is inevitable, but we can help mitigate financial burdens from the unexpected. Our experts at BKS Partners can create a comprehensive policy that protects your directors, officers, and management for peace of mind and your bottom line. Reach out to get started today!

Ensure your protection is as distinctive as you are.

Get in contact with an advisor today to see how BKS can support you.