The death of an owner could mean the death of a business.
- Heirs of the deceased may insist on a job or an active role in management, may insist on dividends being paid, may sell their interest to competitors, or may force liquidation in order to obtain funds.
- Creditors may tighten up on credit if the firm’s financial condition is weakened.
- Surviving owners may have no idea how much it will cost to buy out the deceased’s heirs, and may have no cash for the buy out.
A Buy-Sell Agreement funded with life insurance may help the business avoid these potential problems by helping assure cash is available to buy out a deceased owner’s heirs.
There are two main types of Buy-Sell Agreements.
Under an Entity-Purchase Agreement, the business agrees to buy the deceased owner’s interest from the deceased owners heirs or estate.
Under a Cross-Purchase Agreement, the owners agree to purchase life insurance policies on each other to fund the purchase of the owner’s interest upon death.
Make sure you safeguard the continuity of your business. Term Life USA can help develop and illustrate life insurance policies for a Buy-Sell Agreement tailored to your business.