Corporate Business Continuation Insurance




Continue Your Business with Life Insurance

Many businesses fail to plan for the death of a key employee or business owner. Regardless of if your business is a Sole Proprietorship, a Partnership, or a Closed Corp, the death of a key employee or business owner can be costly.

The reason buy-sell agreements in combination of life insurance are used:

  • Most business people do not keep large sums of liquid assets that would be needed to purchase the deceased owner's interest. Most money would be in their businesses.
  • The premature death of an owner may not give the business time needed to justify a purchase price.
  • Bank may not be willing to lend money to a business that has recently lost an owner or the cost of the interest of the loan may be excessive.

  • The heirs of the deceased owner may not get the sum or money needed to settle death costs and there is no guarantee future installment payments will be received if the business fails.

    By using life insurance:

    • Annual premiums are often a small fraction of the death benefit.
    • Death benefits are payable when needed, regardless of when the owner dies.
    • Death benefits are usually federal income tax-free.
    • Cash would assist with the scheduled adjustments after the death of a key employee or business owner.
    • The money to purchase the business interest becomes available without 2nd mortgages

    Buy-Sell Agreements

    With good planning, a sudden death of a business owner may protect the business from being sold to a third party, or relatives may be forced to participate in the business. To plan for the orderly transfer of the business, a buy-sell agreement were created.

    A buy-sell agreement can be between shareholders of a corporation, partners of a partnership, or a key employee and a sole proprietor. The agreement obligates the surviving business owners, key employee, or the business itself to purchase the interest of the deceased owner.

    Advantages of a well planned Buy-Sell Agreement

    • Creates a guaranteed market for the business interest.
    • Allows those who are interested in continuing the business to do so without interference from the deceased owner's heirs.
    • Provides liquidity for the estate of the deceased owner by turning the business interest into cash.
    • Establishes the value of the business for federal estate tax purposes.

    Other Types of Agreements

    • Cross Purchase agreement involves the business owners (shareholders or partners) entering into an agreement among themselves whereby the surviving owners are obligated to buy the interest of the deceased owner, and the estate of the deceased owner is obligated to sell.
    • Entity or stock redemption agreements bind the business itself to buy the interest of the deceased owner, and the estate of the deceased owner is obligated to sell.
    • Wait and See agreements allow flexibility because it is not decided until the owner's death whether the surviving owners or the business purchases the interest of the deceased owner.