Using insurance to fund a buy sell agreement is a smart business decision
Planning for the loss or disability of a business owner or partner with a buy sell agreement and insurance is crucial to ensuring the continuity of your business and protecting the financial interests of each co-owner's family.
A buy sell agreement specifies what will happen to the interests of an owner, partner or shareholder who passes away or becomes disabled. If your company's buy sell agreement requires that the other owners or partners must purchase the deceased/disabled owner's interests, you can use life or disability insurance to fund the buy sell agreement rather than personal funds or business assets.
In many cases, the simplest option is to purchase a life or disability insurance policy on each co-owner or partner. This way, funds could be available to complete a buyout and provide the families of each partner or co-owner a secure source of funds for the value of their interest.
Alternatively, the business can purchase insurance on each co-owner or partner and use the insurance proceeds to purchase or redeem the deceased or disabled owner's interest in the business.