Buy-Sell Agreement Funding
Protect your business and your partners with life insurance designed to fund ownership transitions when the unexpected happens.
What Is a Buy-Sell Agreement?
A buy-sell agreement is a legally binding arrangement that establishes what happens to a business owner's ownership interest when certain events occur, such as death, disability, or retirement.
For businesses with multiple owners, these agreements can establish how ownership interests will be transferred, how the business will be valued, and who has the right or obligation to purchase an owner's share.
While an agreement establishes the plan, it doesn't necessarily provide the money needed to carry it out. That's where life insurance can play an important role.
Why Funding Your Buy-Sell Agreement Matters
An unexpected death can create serious financial challenges for a business and its surviving owners.
Without adequate funding, surviving partners may struggle to purchase the deceased owner's share. The business could be forced to borrow money, sell assets, or negotiate difficult arrangements with the owner's heirs.
A properly structured life insurance policy can provide funds following an insured owner's death, helping surviving owners carry out the agreement while protecting the business's financial stability.
How Life Insurance Funds a Buy-Sell Agreement
Life insurance can provide the financial resources needed to carry out a buy-sell agreement. Here's how the process typically works in three simple steps.
Establish the Agreement
Business owners work with an attorney to establish ownership transfer terms, valuation methods, and the events that trigger a buyout.
Put Life Insurance in Place
Life insurance policies are purchased on the business owners, with ownership and beneficiaries structured to support the agreement.
Fund the Ownership Transfer
When an insured owner dies, the policy proceeds can help the designated purchaser buy the deceased owner's ownership interest.
Two Common Buy-Sell Agreement Structures
The right structure depends on who owns the policies, who receives the proceeds, and how the business ownership transfer is funded.
Cross-Purchase Agreements
Individual business owners purchase life insurance policies on one another. When an insured owner dies, the surviving owners receive the policy proceeds and can use those funds to purchase the deceased owner's ownership interest.
Entity-Purchase Agreements
The business purchases life insurance policies on its owners. When an insured owner dies, the business receives the policy proceeds and can use those funds to buy back the deceased owner's ownership interest.
How Haight Insurance Solutions Can Help
At Haight Insurance Solutions, we help business owners explore life insurance strategies designed to fund buy-sell agreements and protect the businesses they've worked hard to build.
As an independent insurance agency, we can compare coverage options from multiple carriers to help identify solutions that align with your business's ownership structure, financial needs, and long-term goals.
Our approach includes:
- Coverage Planning: Determine an appropriate amount of life insurance based on business valuation and ownership interests.
- Policy Comparison: Explore term and permanent life insurance options from multiple carriers.
- Funding Structure: Help coordinate policy ownership and beneficiary arrangements with your buy-sell agreement.
- Ongoing Reviews: Revisit coverage as your business grows, ownership changes, or valuations increase.
We work alongside your attorney and tax advisor to help ensure the insurance strategy supports your overall business succession plan.
