Buy/sell Agreement

Insure your company’s legacy with a buy/sell agreement policy

Starting a small business is an exciting adventure. You and your co-founders are putting your designs and creations into the market. But while you’re thinking of how much your company will blossom, it’s critical to make sure your legacy can survive.

If one of your founders should unexpectedly pass away, what would happen to your company? Who would get their share of the business? Further, would your company be able to survive until you found a replacement?

If you’re uncertain about your company’s outlook for any of the above situations, it’s time to look into a buy/sell agreement. Although these agreements can be funded in multiple ways, using a life insurance policy offers the best return.

At Best Life Insurance, we’re here to make sure your company thrives for years to come, no matter what. We offer traditional options and combination plans for buy/sell life insurance policies. However, at Best Life, we want to make sure your company’s policy is a perfect fit. That’s why we always work with you to personalize your life insurance policy.

Our buy/sell agreements

Best Life Insurance offers the two most popular types: cross-purchase plans and entity purchase plans. However, we will work with you to create the best plan for your needs.

Entity purchase agreements

In an entity purchase or stock redemption policy, the business owners all sell their portion of the company investment. Then, the business buys life insurance policies on each owner and is named as the beneficiary. So, the company is responsible for paying the premiums.

Should an owner die, their market shares would go directly to their heirs. The company would receive death benefits payouts, and therefore, the remaining owners can buy the deceased owner’s share.

Cross-purchase agreements

For cross-purchase life insurance, each business owner buys life insurance policies on their business partners. If one of the owners should die, the owner’s stock would be passed to the heirs. At the same time, the policyholders would receive the death benefit payments, which are used to buy the stock from the deceased owner’s heirs.

Hybrid or mixed buy/sell agreements

Sometimes, a strictly cross-purchase or entity-purchase agreement is not the right fit. The ownership may be divided in a way that makes setting up the agreement more difficult. That’s where mixed agreements come in. You can choose to have your company insure some owners and have some owners insure the remaining owners.

Best Life Insurance can help

It’s not always easy choosing the buy/sell agreement that matches your company’s needs. At Best Life Insurance, we will work with you to create the best buy/sell agreement for your business.

Benefits of buy/sell agreements

A buy/sell agreement has two purposes. First, it’s a legal agreement stating what happens to funds when one owner leaves or passes away. Second, it provides the money needed to buy the shares of the person who is leaving.

When you enroll in a buy/sell agreement, you can be sure:

Owner’s stock goes to a reliable person.

In most cases, the owner’s heirs choose to sell the stock back to the company. However, if the inheritors were not people the company trusts, the inheritors may not sell back the deceased owner’s company shares.

Heirs can easily sell inherited stock.

Since the stock comes directly from the company their family member-owned, the family knows the remaining owners will provide an excellent offer to buy the stock.

Owners are covered for disability, death, and departure.

The contract will clearly state what happens to an owner’s stock if an owner can no longer work, passes away, or decides to leave the business. This ensures the owners are on the same page and prevents legal battles down the line.

There are no legal battles.

A buy/sell agreement is a legal, binding document with your business partners. So, there will be no questions about what is fair when it comes to divvying up the deceased owner’s share.

Secure your investment with life insurance funding

Technically, there are other ways to fund buy/sell agreements. You could put down all the cash now, but most owners do not have those kinds of savings on hand. Alternatively, you could set up a way to build up cash over the years. However, if an owner passes away earlier than expected, there may not be enough savings to buy their share.

Another option would be signing for a loan. Unfortunately, the interest rates may be affected because there was a triggering event. The lender would be concerned about the company’s future.

That’s why life insurance policies are the best way to fund a buy/sell agreement. Here are some excellent reasons to use life insurance for funding:

Owning the funds to buy back the stock.

If you’ve chosen the proper coverage, you’ll have the funds to buy the stock that your deceased business partner owned.

Coverage for life-altering scenarios.

As the owners, you can agree to a life insurance policy in the event of a disability or death. Your life insurance policy can include guidelines if an insured person becomes disabled. For example, you could choose a lump sum payout or an installment plan.

Tax-free death benefits.

Should an owner pass away, the payout from your life insurance policy is usually tax-free.

Find the right policy with Best Life Insurance

Buy/sell agreements are a critical component of owning a business. They ensure your company’s legacy lives on for generations and in the right hands. Although there are other ways to fund your buy/sell agreement, life insurance is by far the best way to fund it.

However, it’s crucial to select the correct amount of coverage. If your company does not receive the proper payout amount, you may not be able to buy back the stock.

Best Life Insurance will help you work with your business to find the right direction for your buy/sell policy. Our agents have over 15 years of collective experience and are very passionate about their work. Give us a call to schedule a consultation today.

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