Buy sell insurance
Protecting the ownership you and your partners have in the company
What would happen to your company if a partner suddenly passed away?
When a partner passes away, not only is it devastating to the company, but one of the biggest financial hurdles the surviving partners are now faced with is how they are going to buy out shares of their partner.
What are the options?
The remaining partners have 3 options to buy out their partners shares.
1) Loans – It’s safe to say no one wants to go into debt to buy equity of their own company.
2) Cash – Although you may have the cash, after losing a partner, the last thing you want to do is drain the corporate bank account. Plus, using cash is a very expensive way to purchase their shares.
3) Life insurance – Rather than using cash or loans, you can each get a life insurance policy which is paid for by the company. The life insurance proceeds will be used to buy each others shares if a partner suddenly passes away. This is by far the cheapest option to solve this issue.
Example of a buy out with buy sell life insurance
Company X has 3 partners, they each own 1/3 of the company which is valued at $3,000,000. The partners would each get $1,000,000 of life insurance to cover their ownership in the company. The company will pay the premiums and if a partners passes away, the payout is tax-free to the company.
If owner #3 passed away, their $1,000,000 insurance policy would be paid out tax-free to the corporation and used by the remaining partners to purchase their shares. The remaining owners would now have 50/50 of the company and the deceased partners family would have received their fair market value of the shares.
5 reasons you may need buy sell life insurance for you and your partners
1) Do you want to protect the value of your corporate shares in the company?
2) Do you want to eliminate the need to take out massive loans or drain your corporate bank account to buy out your partners’ shares if they suddenly passed away?
3) Do you want to guarantee your family receives the fair market value of your shares if you passed away?
4) Do you want to drastically reduce the time it can take to buy out your partners’ shares?
5) Would you and your partners feel more confident knowing you had this coverage to ensure the survival of your business?
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