Planning for the succession of your business may be one of the most important and critical challenges a business owner will face.
It’s also a great opportunity to ensure an orderly transition upon a triggering event such as the death, disability, retirement, or withdrawal of any of the businesses shareholders, owners or business partners.
A buy-sell agreement is a binding contract that will govern what happens when a triggering event occurs. Additionally, it can contain the terms and fair market value for a buyout of the business interest. As a funding tool for the buy-sell agreement, life insurance provides unique advantages, including immediate cash availability to purchase a deceased owner’s interest.
How a buy-sell funded with life insurance works
- A buy-sell agreement helps establish the value of the business and identifies the purchaser of the business interest.
- The buy-sell agreement helps the owners maintain continuity for their customers, employees and creditors
- The owners have the assurance that a deceased or disabled owner’s share of the business will not transfer to an unsuitable owner.
- When the buy-sell agreement is funded by life insurance, cash is available to purchase an owner’s interest, alleviating the strain of having to wait to get paid.
- A buy-sell agreement establishes a ready market for the business interest.
- A buy-sell agreement allows for the orderly transfer of ownership.
- Proceeds received from the buy-out may provide estate liquidity to offset debt, expenses and taxes. It may also provide a valuable income stream for loved ones.
Read our case study: Protect the future of your business (PDF)