Protect Your Business and Your Family Against the Loss of an Owner
Planning for the loss of a business owner or partner is crucial to ensuring the continuity of your business and protecting the financial security of your family and the families of each partner or co-owner.
To protect your business, your loved ones and your co-owners or partners, you can implement what is known as a buy-sell agreement, which specifies what will happen to the interests of a deceased owner, partner or shareholder. If your company's buy sell agreement requires the surviving owners or partners to purchase the deceased's interests, you can use life insurance—rather than personal funds or business assets—to fund the buy sell agreement.
For many business owners, the simplest option is to purchase a life insurance policy on the life of each co-owner or partner. In this way, funds will be available to complete a buy-out and provide the families of each partner or co-owner a secure source of funds for the value of their interest. Alternatively, the business could acquire insurance on the life of each co-owner or partner and use the insurance proceeds to purchase or redeem the deceased's interest in the business. The structure of the buyout and insurance funding should be tailored to the objectives of the business owners.
Benefits of using life insurance policy for funding needs:
- Funds available exactly when needed
- Insurance proceeds received tax free
- Flexible structure: promissory note; redemption; or criss-cross
- For corporate owned policy, premiums paid with cheaper after-tax dollars; also proceeds generate credit to Capital Dividend Account (CDA).