There is a way to protect your business interest in the unexpected event of a death. Are you aware you can fund a Buy-Sell Agreement with Life Insurance?
A buy–sell agreement, also known as a buyout agreement, is a legally binding agreement between co-owners of a business that governs the situation if a co-owner dies or is otherwise forced to leave the business, or chooses to leave the business.
Why fund with Life Insurance? There are several important reasons starting with avoiding negative impact on working capital and credit position of the business. It also provides for a simple and effective funding method when compared to other methods, such as a taxable sinking fund or paying “out-of-pocket” for the business interest. And, if purchase of business interest occurs before insured’s death, a permanent life insurance policy with cash value can be used to provide a down payment for the purchase price.
How much life insurance do you need to cover a cross-sale? How does it work? What does a cross-purchase look like? Does this agreement cover steps during the life of the owners and after death? Are there different variations of this agreement? Learn more here.
– Stephen Griese, Financial Advisor, Northwestern Mutual
Contact Biz Tip contributor, Stephen Griese