Enter business and policy assumptions
Formula used
| Component | Formula |
|---|---|
| Buy‑Sell Funding | Business Valuation × Ownership % |
| Debt Retirement | Business Debt |
| Operating Runway | Fixed Monthly Expenses × Runway Months |
| Transition Costs | Recruitment Cost + (Interim Monthly × Transition Months) |
| Profit Gap | Gross Profit × Recovery Months × Dependency % |
| Total Need | Sum of all components |
| Coverage Gap | max(0, Total Need − Existing Coverage) |
| Recommended Coverage | Round Gap up to nearest 10,000 (min 0) |
How to use this calculator
- Enter valuation and ownership to approximate buy‑sell funding needs.
- Add business debt that should be retired to protect cash flow.
- Set runway months to cover fixed expenses during disruption.
- Estimate transition costs for recruitment and interim leadership.
- Model profit risk with recovery months and dependency factor.
- Subtract any existing coverage already dedicated to continuity.
- Review the breakdown and download CSV or PDF summaries.
Operating runway and recovery exposure
Continuity funding is highly sensitive to time. Every extra runway month adds exactly your fixed monthly expenses to the target. For example, 25,000 per month and 9 months creates 225,000 of operating buffer. Recovery months behave similarly for profit risk, but they scale again by the dependency factor, often set between 50% and 90% for founder-led firms. Existing coverage offsets the total need dollar-for-dollar. Moving 100,000 of already-owned coverage into the continuity plan reduces the gap by 100,000. The calculator rounds the remaining gap to the nearest 10,000 to keep planning targets practical.
Ownership buyout sizing from valuation assumptions
The buy-sell component uses valuation multiplied by the insured ownership percentage. A 1,600,000 valuation with 40% ownership implies 640,000 to enable a clean transfer of shares. If partners carry debt covenants, keeping this number realistic helps avoid forced sales and reduces negotiation friction during a stressful transition.
Debt retirement and supplier confidence
Debt funding is modeled as a direct add-on because lenders usually require repayment or re-underwriting after a key-person loss. Including 150,000 of liabilities can protect working capital lines and preserve trade terms. Many operators also layer a 5% to 10% contingency on payables when revenue is seasonal.
Transition cost budgeting for leadership replacement
Transition costs combine one-time recruitment plus interim management. If recruitment is 35,000 and interim leadership is 8,000 monthly for 6 months, the subtotal is 83,000. Teams with regulated roles may need longer transition windows, and extending by 3 months increases this component by exactly three times the interim monthly cost.
Premium drivers for planning comparisons
The premium indication is designed for scenario comparison, not quoting. Rates rise steeply by age band, and smoker status can more than double the estimate. Longer terms increase cost because risk is carried for more years, while stronger health classes lower the factor. Use the monthly figure to sanity-check affordability before discussing underwriting details.
Example data table
| Scenario | Valuation | Ownership | Debt | Fixed / Month | Runway | Gross Profit / Month | Recovery | Dependency |
|---|---|---|---|---|---|---|---|---|
| Small agency (single rainmaker) | $750,000 | 60% | $80,000 | $22,000 | 9 | $35,000 | 10 | 80% |
| Manufacturing partner buyout | $4,200,000 | 50% | $900,000 | $120,000 | 12 | $180,000 | 8 | 55% |
| Tech services (project pipeline risk) | $1,600,000 | 40% | $250,000 | $48,000 | 6 | $75,000 | 12 | 70% |
FAQs
1) What does “recommended coverage” represent?
It is the coverage amount that closes the modeled continuity gap after subtracting existing coverage. The figure is rounded up to the nearest 10,000 to simplify planning and reduce false precision.
2) How should I choose runway months?
Start with the time needed to stabilize payroll, rent, and critical vendors. Many small businesses model 6 to 12 months. Each additional month increases the target by one month of fixed expenses.
3) What is the dependency factor?
It estimates how much profit relies on the insured person’s relationships, skills, or approvals. A higher percentage increases the profit-gap component. Use lower values for diversified teams and higher values for founder-led sales.
4) Why include debt retirement separately?
Debt is often callable or must be refinanced after a key-person loss. Funding it separately helps protect banking relationships and prevents cash-flow strain while operations transition.
5) Are the premium numbers a quote?
No. The premium output is an educational indication for comparing scenarios. Actual pricing depends on underwriting, product design, riders, and insurer rules, so confirm with a licensed professional.
6) How can I reduce the coverage gap?
Lower the gap by shortening runway or recovery assumptions, reducing dependency through delegation, or increasing offsets such as existing coverage earmarked for continuity. Improving cash reserves can also reduce the insurance amount needed.