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Buy-Sell Insurance
Protect your business, heirs, co-owners and partners by ensuring smooth execution of a buy-sell agreement should an owner become disabled or pass away.
What is Buy-Sell Insurance?
In co-founded businesses, various unexpected events such as death, disability, retirement, disagreements, divorce, or bankruptcy can have a significant impact. To effectively manage these challenges, business owners often establish buy-sell agreements. These agreements act as a safeguard, ensuring business continuity in the face of such events.
A key aspect of these agreements is the detailed plan for managing an owner's, partner's, or shareholder's interests if they pass away or become disabled. This raises an important question: how can the remaining business owners obtain the funds needed to buy out the interests of a departing shareholder? Addressing this issue is a crucial function of buy-sell agreements.
Life or disability insurance is a practical solution to this financial challenge. When a company's buy-sell agreement requires that the remaining owners or partners purchase the interests of a deceased or disabled owner, using insurance policies, instead of personal funds, loans, or business assets, becomes an efficient and financially sound method. This approach not only ensures adherence to the agreement but also safeguards the business's financial stability during such transitions.
Seamless Transition
Provides funds for partners to buy a departing owner's share, ensuring business continuity without financial hardship.
Flexible Policy Structure
The policy(ies) can be owned by the business or individually by owners, allowing for customized financial planning.
Asset Protection
Prevents the need to use personal or business assets for buyouts, protecting the company's financial stability.
Tax Efficiency
Usually the most cost-efficient, tax-efficient, and risk-free method for funding a share purchase or redemption when a shareholder dies.
Get help with your buy-sell insurance planning.
Speak with a professional advisor who can help.
Ideal Candidates for Buy-Sell Insurance:
Multiple Owners/Partners: It's most beneficial for companies with multiple owners or partners, ensuring smooth transitions in ownership.
Existing or Planned Buy-Sell Agreements: Essential for businesses with a buy-sell agreement in place or considering one, as it supports the agreement's financial obligations.
Avoiding Personal Financial Strain: Ideal for those who prefer not to use personal funds for buying out an owner or partner's share in the event they can no longer participate in the business.
- Preventing Unwanted Succession: Crucial for mitigating the risk of unwanted heirs acquiring business shares, thereby maintaining control within the existing ownership structure.
Types of Buy-Sell Insurance
Life Insurance for Buy-Sell Agreements
Extensive Coverage Options: Offers substantial coverage amounts to suit various business sizes and needs.
Flexible Policy Types: Choose between term life insurance for temporary needs or permanent life insurance for long-term coverage.
Tax-Free Benefits: The insurance proceeds are typically tax-free for the beneficiary, ensuring full financial benefit.
Disability Insurance for Buy-Sell Agreements
Broad Eligibility Range: Available for individuals aged 18 to 60, covering a wide range of business owners and partners.
Policy Duration: The policy remains active until the insured reaches 64 years of age or exits the business, providing long-term security.
Versatile Benefit Payouts: Offers flexibility in benefit distribution, with options for monthly payments, a one-time lump sum, or a combination of both for financial planning adaptability.
Get in touch
Talk to an advisor who can understand your situation, answer your questions and help you build an insurance plan appropriate for your business.
Frequently asked questions
Answers to key questions about Buy/Sell Insurance
Buy-Sell Insurance involves a legal agreement between business partners. Upon a partner's death or disability, the insurance payout is used to purchase the affected partner's share of the business, avoiding the potential issue of unwanted external parties from stepping in.
The value is usually predetermined in the Buy-Sell agreement, either through a fixed amount, a formula, or regular business valuations. This ensures a fair and agreed-upon price for the partner’s share at the time of the claim.
Generally, premiums for Buy-Sell Insurance are not tax-deductible in Canada. However, the benefit received is typically tax-free. It's advisable to consult with a professional advisor for specific cases, as tax implications can vary.
Buy-Sell Insurance ensures business continuity, provides immediate liquidity to buy out a deceased or disabled partner's share, and stabilizes the business during transitions. It also reassures employees, creditors, and customers about the company's stability.
Yes, Buy-Sell Insurance can cover multiple partners. Each partner can be insured separately, or a single policy can be structured to cover all partners, often using a formula to determine each partner's share in the event of death or disability.
Still have questions?
Please contact our office and we'll be happy to address any questions you may have.
