Buy/Sell insurance agreements are designed for businesses that are involved in a partnership with 1 or more partners. The principle behind them is to provide an agreement for equity of one partner to be transferred to the other partner(s) should that partner become seriously ill, permanently disabled or die.
At the same time the partner that exits the business beneficiaries are paid out for that equity. It’s especially useful if one of the owners was to die and the remaining business partners may not want a successor of the deceased owner to become involved in the activities of the business.
The Buy/Sell agreement sets out the terms for this transfer to occur. It is usually taken with a series of life insurance/trauma policies for each owner so that funds become available should a claim need to be made.
How do the life insurance policies work for Buy/Sell Insurance?
Generally speaking the policies are set up with a cross ownership structure where partners are the beneficiaries in each other’s life insurance. That way, the surviving partners can buy out the deceased partner’s equity with the deceased partner’s beneficiaries getting the proceeds. Other structures such as self-ownership, corporate ownership, trust ownership and superannuation ownership are also available.
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