What is a buy-sell life insurance policy?

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A buy-sell life insurance policy is a type of life insurance policy that is designed to help business owners or partners transition ownership of their business in the event of death, disability, or other unforeseen circumstances. The policy provides the funds necessary for the surviving owners or partners to purchase the deceased or disabled owner’s interest in the business.

Why do you need a buy-sell life insurance policy?

There are several reasons why business owners or partners might need a buy-sell life insurance policy. These include:

  • To protect the business. When a business owner or partner dies or becomes disabled, it can significantly impact the business. A buy-sell life insurance policy can ensure that the business can continue to operate smoothly and that the surviving owners or partners have the financial resources to keep the business afloat.
  • To provide financial security for the deceased or disabled owner’s family. A buy-sell life insurance policy can provide financial security for the deceased or disabled owner’s family by providing them with a lump sum of money that can be used to cover expenses such as funeral costs, debt payments, and living expenses.
  • To avoid disputes among the owners or partners. When a business owner or partner dies or becomes disabled, it can lead to disputes among the remaining owners or partners about who should purchase the deceased or disabled owner’s interest in the business. A buy-sell life insurance policy can help to avoid these disputes by clearly specifying who is responsible for purchasing the deceased or disabled owner’s interest in the business.

How does a buy-sell life insurance policy work?

A buy-sell life insurance policy is typically funded by each business owner or partner purchasing a life insurance policy on the other owners or partners. The policies are then structured so that the proceeds of the policy are paid to the surviving owners or partners in the event of the death or disability of the insured owner or partner.

There are two main types of buy-sell life insurance policies:

  • Cross-purchase agreement: In a cross-purchase agreement, each business owner purchases a life insurance policy for the other owners. This means that each owner is both the insured and the beneficiary of the policies.
  • Entity purchase agreement: In an entity purchase agreement, the business purchases life insurance policies for each owner. This means that the business is both the insured and the beneficiary of the policies.

The type of buy-sell life insurance policy that is best for a particular business will depend on the business’s specific circumstances.

How much does a buy-sell life insurance policy cost?

The cost of a buy-sell life insurance policy will vary depending on a number of factors, including the age and health of the insured owners or partners, the amount of coverage needed, and the chosen policy type.

How to choose a buy-sell life insurance policy

When choosing a buy-sell life insurance policy, it is essential to consider the following factors:

  • The amount of coverage that is needed: The amount of coverage that is needed will depend on the size of the business and the financial needs of the surviving owners or partners.
  • The type of policy that is best for the business: As mentioned above, there are two main types of buy-sell life insurance policies: cross-purchase and entity purchase agreements. The best type of policy for a particular business will depend on the specific circumstances of the business.
  • The cost of the policy: The cost of the policy will vary depending on several factors, including the age and health of the insured owners or partners, the amount of coverage that is needed, and the type of policy that is chosen.

Conclusion

A buy-sell life insurance policy can be valuable for business owners or partners who want to protect their business and their families in death, disability, or other unforeseen circumstances. If you are a business owner or partner, consider working with an agent at Songer Benefits to discuss whether a buy-sell life insurance policy is right for you.