A buy-sell agreement spells out what happens to a business owner’s share if they die. Life insurance is a common way to fund it, giving surviving owners the cash to buy the deceased owner’s interest from the family. The family is paid fairly, and the remaining owners keep control of the business.
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How does a life-insurance-funded buy-sell work?
Each owner is insured for roughly the value of their share. When an owner dies, the death benefit provides cash to complete the purchase under the agreement.
Without funding, surviving owners might have to borrow or sell assets to buy out the family.
Cross-purchase vs. entity purchase
In a cross-purchase plan, owners buy policies on each other. In an entity-purchase plan, the business owns policies on each owner and buys back the shares.
The best structure depends on the number of owners and tax considerations, so involve your attorney and CPA.
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Keep the agreement and coverage up to date
As the business grows, its value changes. Review the agreement and coverage amounts regularly so the funding still matches the buyout price.
We can quote term and permanent options for each owner.
Frequently Asked Questions
Do I need an attorney for a buy-sell agreement?
Yes. An attorney drafts the agreement, and your insurance broker helps fund it.
What if an owner is uninsurable?
Other funding methods may be needed. A broker can check carriers with different underwriting rules.
How often should the business value be updated?
Many owners review it every year or two, or after major growth.
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