Using insurance to fund a buy sell agreement is a smart business decision.
To protect your business, loved ones, and co-owners or partners, you can implement what is known as a buy-sell agreement, which specifies what will happen to the interests of an owner, partner or shareholder who passes away or becomes disabled. If your company’s buy-sell agreement requires that the other owners or partners purchase the deceased/disabled owner’s interests, life or disability insurance—rather than personal funds or business assets— can be used to fund the buy-sell agreement. For many business owners, the simplest option is to purchase a life or disability insurance policy on each co-owner or partner. In this way, funds could be available to complete a buyout and provide the families of each partner or co-owner a secure source of funds for the value of their interest. Alternatively, the business can purchase insurance on each co-owner or partner and use the insurance proceeds to purchase or redeem the deceased or disabled owner’s interest in the business
The actual issue limit is based on business financial statements to be provided at the time of application for insurance.
If an insured owner or partner with your company were to die, the tax-free life insurance proceeds of a buy sell life insurance policy would allow the other owners or partners to buy the deceased’s share of the business. At Voyage Financial, we can work with you and your business partners/co-owners to structure an insurance plan that is tailored to the objectives of each owner.
If an insured owner or partner with your company were to become permanently disabled and be unable to continue working, the insurance proceeds of a buy sell disability insurance policy could allow the other owners or partners to buy the disabled owner’s/partner’s share of the business
A buy sell agreement is a legally binding contract or provision within a shareholder agreement, that stipulates, among other things, what will happen when one of the partners, shareholders, or co-owners passes away, becomes permanently disabled or leaves the business. If the agreement calls for the other partners, shareholders, or co-owners to purchase a deceased or disabled owner’s interests they can fund the purchase with life or disability insurance.
Feel free to contact us for more details.