June is Alzheimer’s & Brain Awareness Month, and while most business owners don’t think about how cognitive decline could impact their company, it’s a real risk that deserves attention. Whether it’s Alzheimer’s, dementia, or another condition that affects memory and decision-making, losing a key leader due to mental incapacity can leave a business vulnerable.
If your business relies heavily on one or two people (an owner, executive, or key decision-maker) you need a plan in place in case something happens. Cognitive decline doesn’t happen overnight, but once it starts, it can affect everything from judgment to day-to-day operations. So how do you prepare?
A buy-sell agreement is a legal contract that outlines what happens if a business partner becomes disabled or mentally incapacitated. But to make the agreement actionable, it should be funded with insurance—specifically, a disability buy-out (DBO) policy. This type of insurance provides a lump-sum payment or structured funding to buy out the disabled partner’s share of the business.
Without insurance, buy-sell agreements can fall flat due to lack of available funds. A properly structured DBO policy ensures your business doesn’t suffer from delayed decision-making or financial strain while trying to manage an unexpected transition in leadership. It’s one of the smartest ways to protect both your business and your business partners.
Most people think of key person insurance in terms of life coverage, but disability coverage is just as important, especially when it comes to cognitive conditions. Key person disability insurance pays out a benefit if someone critical to your operations can no longer fulfill their role due to illness or injury including mental incapacity.
This insurance gives your business time and resources to stabilize covering lost revenue, recruiting and training a replacement, or offsetting operational costs during the transition. Think of it as your business’s financial shock absorber. The cost of losing a top leader, temporarily or permanently, can be devastating. Key person coverage helps mitigate that risk.
Make sure your business has a clear and current succession plan that addresses leadership transitions due to health issues, not just retirement or death. Your plan should include guidance on who assumes control and how critical roles will be reassigned.
An updated succession plan, in coordination with insurance-backed buy-sell and key person strategies, forms a complete safety net for your business.
Cognitive decline isn’t just a personal issue; it’s a business risk. Protecting your company from uncertainty starts with the right conversations and coverage.
If you want help reviewing your current plan or exploring insurance solutions that fit your business, reach out today. Let’s make sure your business is protected, today and in the future.
Don’t wait for a crisis to find out if your business is protected. Start your key person risk check now.