Buy/Sell Funding
Funds your buy-sell agreement so ownership transfers smoothly.
In the event of an owner’s death, businesses can face significant challenges in transferring ownership smoothly. Having life insurance on the respective owners can provide a solution by funding their buy-sell agreement, a crucial tool for ensuring the business’s continuity and stability.
The life insurance policy offers the liquidity needed to purchase the deceased owner’s interest, allowing the remaining owners or partners to buy out the shares without financial strain. This ensures that the business remains operational and ownership stays within the agreed-upon structure, preventing disruption or unwanted external involvement. Life insurance for buy-sell agreements is a smart way to safeguard a company’s future in the face of unforeseen circumstances
Educational content only; not tax, legal or investment advice. Life insurance strategies depend on underwriting, policy design and the issuing carrier; guarantees are based on the claims-paying ability of the insurer. Policy loans accrue interest and reduce the death benefit and cash value if unpaid. Talk with your own qualified professionals before acting.
Common Questions About Buy-Sell Funding
What is a buy-sell agreement?
A buy-sell agreement is a contract between business owners that sets who can buy an owner's share, at what price and how it will be paid for, if an owner dies, becomes disabled, retires or leaves.
Why fund a buy-sell agreement with life insurance?
Without funding, the remaining owners may not have the cash to buy the share. Life insurance pays the purchase price when an owner dies, so the family gets fair value and the business stays with the people running it.
What is the difference between cross-purchase and entity redemption?
In a cross-purchase plan the owners buy policies on each other and buy the shares directly. In an entity redemption plan the business owns the policies and buys back the shares. Each has different tax and basis effects, so review them with your CPA and attorney.
Educational content only; not tax, legal or investment advice. Talk with your own qualified professionals before acting.
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