Top 10 Reasons Why Business Owners Need a Buy-Sell Agreement
Having a buy-sell agreement funded with life insurance adds an extra layer of financial security and practicality to the arrangement.
Here are the top 10 reasons why business owners need a buy-sell agreement and should consider funding it with life insurance:
- Smooth Transition and Continuity: A buy-sell agreement aids a seamless transition of ownership, while life insurance provides the necessary funds for the transfer, maintaining business continuity.
- Immediate Liquidity: Life insurance provides an immediate source of funds upon an owner’s death, allowing the business to quickly buy out the deceased owner’s share without impacting cash flow.
- Financial Protection: The life insurance proceeds replace the economic value of the deceased owner’s share, protecting their family from potential financial hardship.
- Estate Tax Planning: Life insurance can help cover estate taxes, so that the business can continue operating without the need for forced sales or excessive financial strain.
- Fair Valuation: Having a life insurance-funded buy-sell agreement can help aid the business in being fairly valued, as the insurance payout can bridge the gap between market value and family expectations.
- Avoiding Fire Sales: Without life insurance, surviving owners might need to liquidate assets or seek outside investors to raise funds quickly, potentially leading to undervalued sales.
- Protecting Family Interests: Life insurance allows the deceased owner’s family to receive a fair value for their stake, without imposing undue financial pressure on the business.
- Cost Efficiency: Life insurance premiums are often more cost-effective than other funding methods, especially when considering potential future financial needs.
- Tailored Solutions: Life insurance policies can be tailored to match the specific terms of the buy-sell agreement, ensuring a customized and effective funding mechanism.
- Peace of Mind: Having a funded buy-sell agreement offers all parties involved—owners, families, and stakeholders—peace of mind knowing that the business’s future is secured in a well-structured manner.
By combining a buy-sell agreement with life insurance funding, business owners can rest assured that their businesses will remain financially stable and operations will continue smoothly, even in the face of unforeseen events. It’s important to collaborate with legal, financial, and insurance professionals to design a solution that aligns with the business’s unique needs and objectives.
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This publication has been prepared by TrueNorth Companies, L.C. and is intended for informational purposes only. This publication does not constitute any type of representation or warranty, and does not constitute, and should not be relied upon as, legal advice. This publication is not a contract and does not amend, modify or change any insurance policy you may have with an insurance carrier. © 2023 TrueNorth Companies, L.C. All rights reserved.