Buy/Sell Insurance


People are counting on the continuity of your business.
When businesses are disrupted, life is disrupted.
Your family, employees, business partners and customers all
rely on your business for various forms of sustenance.
These dependencies don’t disappear when a business
owner dies or departs. Fortunately, you can position your business
to LIVE ON, no matter what happens. It’s
easier than you think with Buy/Sell Insurance.

Ask yourself …
■ What would happen to your business if something happened to YOU or your business partner?
■ If your business partner died, would you have the immediate funds necessary to purchase his or her
interest in the business?
■ Is business continuation important to your legacy? Do you want your business to live on to sustain
your family for generations to come?
■ Do you have a practical, sustainable business continuation plan?

Case in point.
John and Mark owned an accounting firm with 35 employees. The
firm grew rapidly, so they decided to open a second location. This
investment depleted the company’s cash reserves but was expected
to yield many rewards over time.
What they didn’t foresee was Mark’s bicycling accident. One day,
while cycling, he was hit and killed by a car. John was left without
a partner at a time when the business could not afford to buy
out Mark’s ownership. And with two kids in college, John couldn’t
personally afford the investment either.
Fortunately, the two had purchased buy /sell insurance on one
another. Upon Mark’s death, the policy paid John a benefit equal
to the agreed upon price according to the buy /sell agreement.
John was able to secure full ownership and Mark’s family benefited
from the sale of the business. Furthermore, no jobs were lost and
customers continued to receive the services they counted on.
Because Mark and John cared enough to plan for business
continuity, those who counted on their business were sustained.
Note: The details used in this scenario are hypothetical and used for
illustration purposes only.

Plan now.
Every business that would be adversely impacted by the death of an owner should
consider buy/sell insurance. Just as families have wills to designate the
allocation of their assets and guardians for their children, businesses might
use buy/sell insurance to outline and fund the terms of business continuation.

Failing to plan is planning to fail.
When a business owner dies, there may be a ripple effect, impacting the family,
surviving partners, employees, creditors, customers and others. Buy/sell insurance
is an essential business planning tool to position your business to LIVE ON.

Three groups adversely impacted by no succession plan:
1. YOUR FAMILY: Unable to secure a buyer for
the business and desperate for cash, your
family may sell it to a major competitor for
less than its value.
2. YOUR PARTNER: Your partner may not agree
with your family on a buy out price. If they
do agree, your partner may be unable to
afford the purchase.
3. YOUR EMPLOYEES: The business may
struggle without you or a succession
plan, employees may lose their jobs,
incomes and health benefits.

Three positive outcomes of buy/sell insurance
1. The designated buyer or the surviving partner
has funds toward buying out the deceased’s
share of the business, facilitating an orderly
transfer of an important business asset.
2. The buy/sell agreement pre-establishes
the terms of the buy out. It also provides
immediate cash which may facilitate an
amicable transfer and fund the agreement.
3. The new owner has funds to facilitate a smooth
transition for customers, creditors and suppliers.
The agreement may even stipulate which
employees should move into leadership roles.

How does buy/sell insurance protect your business?
■ Buy/sell insurance is most often used by businesses with multiple owners,
although in some circumstances a one-way agreement can be useful to single-owner
businesses. In a one-way agreement, a third party
agrees to purchase the business in the event of the owner’s death.
■ The agreement creates a blueprint
of who is to buy the business and for
what price.
■ The buy/sell insurance benefit provides
cash to fund the terms of the agreement.
■ Buy/sell insurance can take on many
forms. One of the most popular models is
the cross-purchase agreement in which
business owners purchase policies on one
another. When one partner dies, the other
partner receives the benefit which is used
to fund the agreement.