What is Buy-Sell Insurance?
A buy-sell agreement is a legally binding contract, often funded by life insurance, that governs the transfer of business interest upon the death or disability of an owner. In the occurrence of a triggering event, life insurance provides immediate liquidity to purchase the deceased owners business interest for a fair market value, ensuring a smooth transition and continuity for the business, employees and its customers. It is estimated that only 46% of business owners have a buy-sell agreement in place, and further only 15% have a properly funded buy-sell agreement in place.
What Are The Benefits?
- Immediate Liquidity – Provides immediate liquidity to purchase the deceased owners business interest that may not be available otherwise.
- Immediate Sale – Guarantees the heirs of the deceased owner have an immediate buyer for the business interest, ensuring the business interest isn’t passed on to an unsuitable party.
- Smooth Transfer – Facilitates a smooth transfer of ownership for the business, its employees and any additional stakeholders
What is Key Person Insurance?
For the majority of small businesses, their success can be directly attributed to a handful of key people. Key person insurance is a life insurance policy that is issued on an individual who is invaluable to a business. In the event of the key person’s death, the company receives immediate liquidity to help overcome the financial challenges that come with the passing of a key person. Funds received are generally used to offset the costs associated with finding and training a replacement, along with supplementing interrupted revenue. Roughly 70% of business owners report their revenues are dependent on one or two key individuals, yet only 22% of small businesses have key person insurance.
What Are The Benefits?
- Cost Efficient – A cost efficient way to provide immediate liquidity upon the death of a key employee.
- Cover Replacement Costs – Proceeds can help cover the costs of finding and training a replacement.
- Continuity – Assures business continuity and the protection of profits, debts and operations.