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Using Life Insurance to Secure Business ContinuityHow To Use Life Insurance to Secure Your Business After DeathIf your business is a small business or partnership, then you can secure its future past the death of a key employee, partner, or co-owner with life insurance and an effective buy-sell agreement. When a partner dies, their ownership interest passes to the estate of the partner. The estate will stand in the shoes of the decedent. The estate will be entitled to have a valuation of the ownership interest and may depending on the initial business set-up demand payment for their percentage of the business. As any small or family business person knows, the business, while rich in assets and equipment on paper, rarely has the cash flow or credit necessary to absorb the sudden purchase of a large percentage of the business. Further, the estate participating in the business can have other deleterious effects:
To protect against this, the original partnership agreement or an ancillary agreement, properly adopted (see an attorney in your state to accomplish this), can be created where the business agrees to buy the share of the owner and the owner agrees to sell the share for a set price. The agreement could be made as an immediate option upon death of the owner. Insurance is used to match the set price in the buy-sell agreement. Each owner is insured through a life insurance policy typically a low-cost term policy for the amount agreed to in the buy-sell agreement.
In this way, the business is continued without deviation or interruption and the estate is provided for without the forced dissolution of the business. For the buy-sell agreement obtain the assistance of a lawyer in your state. For the term policy discuss the agreement with you insurance professional. |
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