Buy Sell Agreement Life Insurance

If you are a part owner in a business then having a buy sell agreement life insurance policy may be a worthwhile investment. Business problems can always occur during the partnership, but they can especially occur when the partnership changes due to death.

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By having a buy sell agreement life insurance policy, all partners in the business are given the chance to have an equitable way of dealing with the split if and when one of the partners dies. This can be advantageous to both the business owners and the family members.

Although it is usually in the best interest of all parties, there may be some individuals who won’t qualify for a buy sell agreement life insurance policy. In these cases, some other distribution plan should be devised to address how the business will be handled in the event of a death.

Life Insurance and Wills

Life insurance is meant for individuals to provide financial assistance for their families at the time of their death. You cannot buy life insurance for your business. Yet your business is an important financial factor to your family when you die.

Wills are legal drafts that explain how you want your assets divided among family, friends, or organizations. If you have a business, you can give your business away to a person or group of persons in your will. However, if you have a partner, a will may not be the best way to distribute your share of the assets.

Whether you have two partners or five partners, giving away your business through a will can be complicated. If you give away your share to a non-business owner, then you are changing the dynamics of the company. The person who inherits your business may not really be interested in running your business and there is the possibility that he or she will not get along with your partners.

If you give away your share of the business to one of your partners, you again risk the possibility of throwing off the balance of the business’ dynamics by changing the amount of power each partner has. You can distribute your share evenly amongst all of your partners, but then you aren’t giving your assets to your family. There are also tax implications for everyone concerned in these scenarios.

Using a Buy Sell Agreement Life Insurance for your Business

The answer to how to distribute your share of your business for when you die may be to purchase a buy sell agreement life insurance policy. In this scenario, all of the partners in your business must agree to purchase the policy otherwise you once again have an imbalance in schematics.

Similar to a will, a buy sell agreement life insurance policy lays out how everyone’s share in the business will be distributed. However, unlike a will, this is an actual insurance policy with a benefit payout.

Very simply, if you have a share in a business and you die, with a buy sell agreement life insurance policy, your family will receive fair payment and your business will stay with the remaining partners. The policy is a contract that makes your family obligated to sell your share of the business to your partners and it obligates your business partners to buy your family’s shares.

Types of Buy Sell Agreement Life Insurance Policies

There are several different types of buy sell agreement life insurance policies you can buy. The most effective way to make this type of plan work is when everyone agrees to the same policy.

Cross purchase plan- Each business owner buys and owns his own policy, but the premiums are paid for by each of the other partners.

• Entity plan- The business owns the policy and pays for all of the partners’ premiums.
• Stock redemption plan- This is similar to an entity plan; only the corporation buys the policy for its shareholders and pays for all of the premiums.

There is also a Wait and See option which keeps a couple of different options open without locking in anything in particular. This type of plan provides the flexibility of either a cross purchase plan or an entity plan, depending on which option is exercised at the time of death.

Having a buy sell agreement life insurance makes dealing with business owner survivorship simpler. It allows for an agreement to be reached while everyone is alive and with sound mind. This type of deal can eliminate arguments amongst family and business partners. It also provides a tax shelter.

Review all of your options together and come to a mutual agreement about which kind of buy sell agreement life insurance makes the most sense for all parties involved. Enter your zip code to start getting free life insurance quotes now!