Business Buy Sell Agreements and Term Life Insurance

With a "partnership buy/sell agreement" any surviving partners will purchase the portion of a business owned by a deceased partner. The agreement includes the purchase price of the deceased person's interest in the business. The agreement should include a guarantee to ensure money is available at the time of loss. Life insurance is the perfect method to guarantee availability of the money.


Cross-Purchase Agreements with Life Insurance

With the use of a "cross purchase buy-sell agreement" each partner purchases a separate life insurance policy on every other partner's life equal to the amount needed to buy a share of the partner's interest at death. In a three-partner arrangement each partner would buy two life insurance policies covering each of the other two partners. In this manner each surviving individual partner would use the proceeds to purchase the deceased partners business interest.


Entity Purchase Agreements with Life Insurance

With the use of an "entity purchase buy/sell agreement" the business owns the life insurance policy on each partner. So, in contrast to the "cross purchase buy-sell agreement", where it would take six life insurance policies to cover the three partners, the "entity purchase buy-sell agreement" would only require three life insurance policies. The business would own the policies instead of the partners, thus at the time of death of a partner the business (entity) would pay the proceeds to the deceased heirs instead of the individual partners.


Corporate Stock Redemption with Life insurance

Closely held corporations are much like partnerships. They have stockholders rather than partners. With a closely held corporation, the stock is held by a select group rather than being made available to the public. In this case, the corporation would purchase the life insurance policies on the lives of the stockholders and own the policies. At the time of death of a stockholder, the corporation would receive the insurance policy proceeds and the use these proceeds to purchase the stock from the deceased heirs.

Note:  The intent of this article furnished by termlifeamerica.com is to inform and motivate the general business public into action.  One should consider only a qualified practicing legal individual or entity; in the state in which you reside for qualified business-planning advice. 


Related:

	General Business Life Insurance Overview
	Business Owners- Types of Transfer Agreements
	Problems Explained- Business Continuation and Transfers
	Problems of the Closely Held Corporation
	Business Debt Coverage
	Replacing the Key Employee and Life Insurance
	Non-Qualified Deferred Compensation and Life Insurance
	Supplemental Executive Retirement Plans and Life Insurance
	Employer Executive Bonus Plans and Life Insurance