Life insurance to protect the value of the key persons
In a small to medium sized enterprise the value of the business is oftentimes driven by the owner and key shareholder of the enterprise and the future earnings is dependent on the owner being there leading and managing the business. This is called personal goodwill as the owner is like the CPU of the business and if something should happen to the owner such as un-planned death, disability or critical illness, the business value would significantly decline. Life Insurance and Living Benefits Insurance is generally recommended as the preferred option to mitigate this risk.
As the family enterprise becomes more successful and develops best practices for family enterprises that is less dependent on one owner the goodwill becomes what is called business goodwill based on good branding and good governance which may include independent directors to help the family enterprise with strategic decisions between the family and the Enterprise.