Using Insurance and Buy-Sell Agreements for Businesses.
It is important to put some thought and planning into protecting your loved ones from the financial hardship they could face if you were to die prematurely. If you are a business owner, it’s also critical to plan ahead to ensure your business partners and employees don’t need to worry about what would happen to the company if you died. Creating a buy/sell agreement, and funding it with life insurance, can help alleviate that potential financial stress.
Benefits of Buy/Sell Agreements
Buy/sell agreements funded with insurance can provide several benefits, including the following:
- Provide a ready source of liquid assets after your death to allow a business partner, key employee, or other trusted party to purchase the business.
- May ensure your business legacy continues, providing continuity for your employees, creditors, and customers.
- Provide funds for your heirs to cover the costs of your death, including estate administration, debts, and taxes.
- Relieves your loved ones of having to try to sell or dispose of your business assets on their own, while also giving your business partners peace of mind knowing they won’t have uncooperative heirs as partners.
- May provide tax benefits in some cases.
How Buy/Sell Agreements Funded with Life Insurance Work
Buy/Sell agreements start with a legally-binding document between business partners or between business owners and key employees.
When life insurance is used in conjunction with buy/sell agreements, the business or the individual business partners purchase insurance policies on each other’s lives. Rather than naming the insured person’s spouse, children, or other loved ones as beneficiaries, the other party or parties to the buy/sell agreement are named. So, if a business owner dies while the policy is in force, the death benefit proceeds are paid to the other parties to the agreement, who can then use those funds to buy out the deceased partner’s share of the business. This can keep the business running smoothly while providing funds to the deceased person’s family.
There are a variety of different types of buy/sell agreements, and several ways you could choose to structure a buy/sell strategy to take care of both your business and your loved ones.
If you are a business owner, you owe it to your partners, employees, and your family to plan ahead for the “what if” scenarios. To learn more, contact Christopher Ferguson Insurance in Tyngsboro today online or call us at 617-386-6572 today.