Buy Sell Insurance

Buy-Sell Agreement: Include Life Insurance For Business Partners

When entering into a business partnership, it is important that each partner takes steps to keep themselves as well as the other partner or partners protected. After all, if something were to happen to one partner, the remaining partner or partners could be left in a terrible financial situation. Furthermore, the family of the deceased business partner will need to be compensated in order to replace the loss of income from the business. For these reasons and more, it is important to explore options for life insurance for business partners and to have the proper policy or policies in place right away when forming a business partnership.

While there are different types of policies available for business partners, the type of life insurance being used and the value of the policy or policies will be established in the buy-sell agreement. A buy-sell agreement specifies how the other partner or partners will buyout one partner in the case of a variety of different "triggering events" that might lead to the end of a business partnership. In addition to the death of a partner, other triggering events that might be listed in a buy-sell agreement include:

-Disability of a partner
-Desire to sell to a third party
-Retirement of an partner
-Divorce of an partner
-Bankruptcy of a partner

In the case of a partner's death, the buy-sell agreement will typically require the remaining business owner to purchase the deceased owner's interest in the business. In this way, the deceased partner's assets are protected and that partner's family is properly compensated. Since being suddenly required to buy out the partner's interest can be a significant financial burden on the remaining partner, it is essential to purchase some form of life insurance for business partners.

One option for business partners is for each owner to purchase a policy and to list the business as the beneficiary. This way, the business can remain afloat without any disturbance to its liquidity as the remaining partner or partners attempts to come up with the necessary funds. To ensure the deceased partner's family receives a fair amount, the buyout and life insurance policy benefit amount will be established in the buy-sell agreement. The surviving partner can then use the life insurance benefits the business receives in order to buyout the deceased partner's interest in the business.

The other option is to establish a cross-purchase arrangement instead. With a cross-purchase arrangement, each business partner owns a life insurance policy on each of the other owners. In this way, the surviving business partner or partners receive a payout, which they can then use to buyout the deceased partner's share of the business.

Business partners should explore all of their options carefully and should consult with an attorney before determining which method is right for them. Either way, it is essential to include the agreed upon method in the buy-sell agreement. This way, all partners can be certain their assets are properly protected.