Simply Explaining Insurance #83- Buy Sell Agreements

If you are a business owner and you have a partner, a buy sell agreement should be an important part of your business plan.

A buy-sell agreement in its simplest terms is a life insurance policy that the business owns in the event of the untimely death of one of the partners.

When a business partner dies, the shares of the deceased generally will go to the surviving spouse. Now the spouse is part owner of the business. This life insurance policy is owned by the company, and its beneficiary is the surviving partner. That money is used to buy out the spouses portion of the business.

It’s important to have this all laid out in your partnership agreement put together by a lawyer. The value of the business needs to be predetermined in the agreement. From that value, it is easy to come up with the face amount on the life insurance policy.

This policy can be a term policy which would be a business expense, or it can be a permanent policy and grow into a company asset. As always, it’s important to meet with a licensed insurance professional to walk you through the process.