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.
