What Is Buy-Sell Insurance?
Buy-sell insurance, or sometimes called buyout insurance, is a funding method in order to satisfy a legal agreement between business partners.
There are 2 components of any buyout:
- The Triggering Event – Common triggers include death or disability of a business partner
- The Funding Method That Provides Capital – Often buy-sell insurance owned by the other partner(s) or the business
Do You Need Buy-Sell Insurance?
A quick test to determine if you should be considering a buyout insurance policy is thinking about how you will come up with the money to buy out a partner if he/she passes away suddenly.
For businesses with a higher valuation, the most efficient way to come up with a large lump sum is to have an insurance policy that pays out when a partner becomes unable to continue in the business.
If you cannot come up with the capital needed to buy out the shares of the deceased, you should consider purchasing insurance.