If you’re a business owner, you probably spend most of your time focused on keeping things running smoothly: managing people, serving clients, and handling the countless details that keep your business moving forward. But what would happen if one of your key personnel—maybe a business partner, top salesperson, or essential employee—suddenly passed away or became unable to work?
For many companies, that kind of loss can cause more than emotional stress. It can disrupt day-to-day operations, reduce revenue, and make it difficult to continue operating as usual. That’s why planning for the unexpected is such an important part of business continuity.
Two of the best tools for protecting your business are Key Person Insurance and Buy-Sell Agreements. While both can help you safeguard your company if something happens to a vital team member, they work in very different ways.
In the sections ahead, we’ll look at what each one does, how they differ, and how to decide what makes the most sense for your business.
What Is Key Person Insurance?
Think about the people your business depends on most. Maybe it’s a founder whose relationships drive sales, a key employee with technical expertise, or a manager who keeps your operations running smoothly.
If that person were suddenly gone, how long could the company keep things going?
That’s exactly where Key Person Insurance comes in. It’s a type of business life insurance (and sometimes disability coverage) that a business takes out on an essential person (the “insured person”). The company pays the premiums and receives the benefit if the insured person passes away or becomes disabled.
Those funds can be used to protect the business by replacing lost revenue, covering outstanding debts, training a new employee, or giving the company breathing room to continue operating while it regroups.
What Is a Buy-Sell Agreement?
A Buy-Sell Agreement is a legally binding plan that spells out what happens to an owner’s share of the business if something unexpected occurs (i.e. a business partner dies, becomes disabled, or decides to leave the company). Think of it as a roadmap for how ownership will change hands without disrupting the company’s stability.
Here’s how it usually works: business owners (or business partners) agree ahead of time on how the shares of the business will be valued and transferred. Then, life insurance policies are often used to fund the agreement. If one partner passes away, the insurance payout provides the funds for the surviving partners to buy the deceased partner’s share. This keeps control of the company with the remaining owners and ensures the deceased partner’s family is fairly compensated.
It’s a smart and proactive way to protect everyone involved—the business itself, its partners, and even employees who depend on stable leadership.
When set up properly, a Buy-Sell Agreement keeps ownership transitions smooth, minimizes disputes, and helps the company keep moving forward no matter what happens.
Key Person Insurance vs. Buy Sell Agreements: How Are They Different?
While Key Person Insurance and Buy-Sell Agreements often work hand in hand, they’re actually two very different tools.
Think of a Buy-Sell Agreement as a kind of business prenup. It’s a contract between business partners that outlines exactly what happens to each person’s shares of the business if someone leaves, becomes disabled, or passes away. It sets expectations early, prevents disputes, and gives everyone peace of mind about what comes next.
Key Person Insurance, on the other hand, is an insurance policy designed to help cover the costs that may arise if a critical person suddenly isn’t there. It’s essentially a financial safety net that can help your company weather the storm and keep things running smoothly.
So, while both are designed to protect the business and support business continuity, they tackle the problem from different angles: the Buy-Sell Agreement defines what happens; Key Person Insurance helps pay for it.
How to Decide Which Is Right for You
When it comes to protecting your company, it’s not always a question of choosing—it’s often about how the two can work together.
A Buy-Sell Agreement sets the legal framework for what happens in a nightmare scenario. But having that plan in writing doesn’t mean the money to make it happen is automatically available. That’s where Key Person Insurance (or life insurance used to fund the Buy-Sell Agreement) comes in. The insurance payout gives the surviving partners the financial means to buy the deceased partner’s share, keep ownership stable, and avoid draining the company’s resources.
Even if you don’t have multiple owners, Key Person Insurance can still be valuable. For businesses that rely heavily on one or two key employees, it can help cover expenses and support business continuity while you search for a replacement or adapt your day-to-day operations.
Ultimately, deciding what’s right for your business depends on factors like your company’s size, ownership structure, and how much your success depends on specific individuals. A conversation with a trusted insurance advisor, accountant, or business attorney can help you determine which combination of protection fits your situation best.
Let’s Protect What You’ve Built
No matter how successful your business is today, the future can be unpredictable. The right protection plan—whether it includes Key Person Insurance, a Buy-Sell Agreement, or both—can make all the difference when life throws the unexpected your way.
At Darr Schackow Insurance, we’ve been helping business owners safeguard their companies and plan for long-term business continuity since 1992. Our team works with top-rated insurance carriers across the country to find flexible, affordable options that fit your business goals and your budget.
We understand that every company is unique, and that’s why our advisors take the time to understand your structure, your key people, and your growth plans before recommending coverage. Whether you’re a startup, family business, or growing organization, we’ll help you build a plan that protects the business you’ve worked so hard to create.
Talk to a DSI advisor today to learn how we can help you design a coverage strategy that keeps your business and your future secure.