A buy-sell life insurance agreement is beneficial for business owners, their families, and any shareholders. This agreement activates when a co-owner leaves the business or dies. The family of the deceased obtain their loved one’s share of the business. All remaining co-owners or shareholders have the opportunity to buy back the shares of the deceased and then sell them.
The way buy-sell agreements work is each co-owner purchases life insurance policies on the lives of each co-owner but not themselves. In the event a co-owner dies, other co-owners receive death benefits. In addition, the deceased’s family gets a cash payment from the interest in the business.
When does a buy-sell agreement activate?
Death and leaving the company are not the only ways to trigger a buy-sell agreement. However, these are the two most common reasons an agreement would activate. These two scenarios are a part of the five D’s: death, departure, disability, divorce, and disqualification.
When it comes to departure, the agreement is triggered if it is involuntary or voluntary. So, there are many ways in which a buy-sell agreement can activate. Disqualification is one of the most obscure reasons a buy-sell agreement would trigger, but it pertains to the wrongdoing done by a person and is removed from an ownership position.
Why choose a buy-sell agreement?
The primary reason co-owners choose a buy-sell agreement is to protect the business. Those who are surviving members can benefit greatly from a buy-sell agreement. A co-owner dying can impact a business’s finances, day-to-day operations, and more.
In addition, buy-sell agreements provide extended protection for specific events where financial instability can occur like a divorce or disability. These are serious issues that can affect the livelihood of a business.
Is a buy-sell agreement right for you?
It’s okay if you are unsure if a buy-sell agreement is right for you. Contact Texas Insurance Agency today for an appointment. You can reach us at (281) 993-8384. Our team can help you determine if a buy-sell life insurance agreement is right for you. There are many types of commercial insurance policies you should consider, so it’s okay to ask us for help! After all, we are here for you.