by Tom Snow

3 Things To Consider When Purchasing Buy-Sell Life Insurance


What is Buy-Sell Life Insurance? It is a tool that is used to help a business fund the purchase of a deceased partner’s shares. I am often approached by businesses that explain they need Buy-Sell Life Insurance. My immediate question following is, “What does your Buy-Sell Agreement State?” Many times I get a blank stare, a moment of silence, and a question: “Why do I need an agreement?”

I am not an attorney, but I am certain that purchasing life insurance to fund a buy-sell agreement needs to follow a process and it does not start with a life-insurance policy.  Here are three things to consider when purchasing a buy-sell life insurance policy.

  1. The Buy-Sell Agreement – The purpose of the buy-sell agreement is to provide a business with direction or “rules” in the event one of the partners exits the business either voluntarily or involuntarily (retirement, disability, death etc). If these rules do not exist, how will the business move forward? In a situation of death and disability how do business owners protect their families and themselves to ensure they would receive a proper value for their investment? An attorney can aide in this process greatly and advise on repercussions to each party, and most importantly make sure the agreement is fair to each party.
  2. Financial Implications – Secondly, talk to your CPA.  There are many factors that need to be considered depending on the type of business you own. For Instance, the percentage of ownership between partners, outlining tax consequences when shares/assets are transferred, and if insurance policies are used as a funding tool there are specific rules that should be adhered to.
  3. Policy Options – Finally you should evaluate what types of policies you will need to fund the different events that would cause a business to use their buy-sell agreement. An insurance advisor should provide recommendations for different programs that will help provide solutions to funding your agreement. Those solutions can be delivered in a variety of ways, and require the same attention and focus of the agreement itself.

You need to surround yourself with a team who is willing to collaborate with each other to develop a plan to accomplish your goals. The success of your business could ultimately depend on it.  To learn more about the creating a team to assist you with your buy-sell program, contact Tom Snow | 906.315.7236 | toms@vastsolution.com.

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