Buy-sell insurance is one of the best ways to assure the continuation of your business in the event of a partner’s death. Many businesses purchase buy-sell life insurance to avoid the pitfalls often involved in the continuation of a business following the death of a partner.
Is a Formal Buy / Sell Agreement Required?
Buy-sell insurance is often accompanied by a legal buy-sell agreement that requires any surviving partner(s) to purchase the remainder of the business in the event of a partner’s death-but is not a requirement. In the event of a death, the purchase is funded by the death benefit proceeds provided by the buy-sell insurance policy.
How much insurance is allowed under a Buy / Sell Agreement?
The amount of insurance necessary varies by company and is often determined by taking the market value of the business divided by the percentage of ownership of the insured partner. Generally, up to 5 times the annual revenues generated by the business can also be included.