Buy Sell Agreement - Life Insurance

What Is a Buy Sell Agreement in Life Insurance?

<lingo>A buy sell agreement is a type of contract statement developed by business owners. In the agreement, the co-owners of a business agree to pay for the other portion’s business value at the time of their death. This may be done using a life insurance policy taken out on the co-owner. In this type of agreement, the parties agree to the terms well in advance of any death. It is designed to make it possible for the living owner to continue to operate the business if the other dies.</lingo>

Buy Sell Agreement Clearly and Briefly Explained

When a buy sell agreement is put in place, the co-owners of a business have come to an agreement in which they will follow the same action if one of the co-owners dies. If one co-owner dies, the other party agrees to buy out the deceased individual’s ownership in the business. In doing so, the business remains in the hands and control of the remaining co-owner. This can help to ensure that the business moves forward the way that the owners decided it should.

<twitter>A buy sell agreement is a type of contract statement developed by business owners. In the agreement, the co-owners of a business agree to pay for the other portion’s business value at the time of their death.</twitter>

In many cases, a life insurance policy is used to facilitate this process. The company – not the family – takes out a life insurance policy on each of the co-owners of the business. The policy is designed to provide a life insurance benefit if either of the owners dies while the policy is in place. If that happens, the policy pays a set amount of money to the still living co-owner or to the business. The funds are then used to pay off the estate or the family members of the deceased co-owner. This allows for the business to continue without having to be divested or sold off to pay the family their portion of the value of the company.

A buy sell agreement is a way of protecting the company for the long term. It is often secured by a life insurance policy as it can provide a key lump sum of money at the time of the death that can be used to pay for the purchase of the other portion of the business.

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