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Business Insurance  / / / / /

Buy Sell Insurance

Life insurance can be used to provide the funds necessary to finance a buy-sell agreement that preserves the value of the business

It is an agreement between co-owners of a company that governs what happens to the business if one of the owners dies or leaves  the company. It is a contract that binds the owner’s business interest to sell at his or her death, and a designated buyer to purchase the business interest for a specified or determined price.


Business  / / / / /

Buy Sell Agreement

  • Insurable interest.
  • A requirement of life insurance is that a valid insurable interest exists at the inception of the policy.
  • Proper planning with a buy-sell agreement offers several advantages:
    • A guarantee that there will be a market for the closely held business interest.
    • Liquidity for the payment of death taxes and other estate settlement costs.
    • Establishment of the estate tax value of the decedent’s business interest, making the estate planning process more reliable for the owner.
    • Continuation of the business in the hands of the surviving owners and/or employees.
    • Improved credit risk because the probability of continuation of the business is enhanced.

Business  / / / / /

Term Insurance

  • The buy-sell agreement may be appropriate if expected to end by age 65 or 70.
  • Low annual premiums in the early years are important.
  • The purchase and sale are triggered by an owner’s disability or retirement.
  • The insurance is needed as a source of liquidity or collateral for the company.
  • The term insurance can be replaced with permanent life insurance.