BUY-SELL AGREEMENT LIFE INSURANCE
A buy-sell agreement, also known as a buyout agreement, is a contract funded by a life insurance policy that can help minimize damage resulting from the sudden departure, disability, or death of a business owner or partner. While a key person policy addresses day-to-day operations of a business, buy-sell agreements address ownership in the event that one of multiple owners passes away. A buy-sell agreement is one of the most under-utilized (yet highly critical) planning elements for businesses with multiple owners.
This contract is among business owners which, upon the death of one of the owners, requires the remaining owners or the company itself to purchase the deceased’s interest in the company according to the agreed upon terms of the contract. In addition, the deceased’s heirs are required to comply by selling their inherited interest at the previously agreed upon price.
Without a buy-sell insurance plan, the death or disability of an owner or partner can trigger a domino effect that can cripple a company.
This is a conditional assignment appointing a lender as the primary beneficiary of a death benefit to use as collateral for a loan. Banks readily accept life insurance as collateral due to the guarantee of funds if the borrower dies.
In the event of the borrower’s death before the loan’s repayment, the lender receives the amount owed through the death benefit, and the remaining balance is then directed to other listed beneficiaries.