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Universal Life Insurance to fund a Buy/Sell agreement

Universal Life Insurance QuotesOne of the biggest difficulties faced by a privately-held corporation is the death of one of the shareholders. The loss of a key shareholder can negatively affect the ongoing viability of your business if immediate steps are not taken to reassure creditors, employees, suppliers and investors. This makes business succession planning so important. One of the more cost-effective tools used by business owners is a Buy/Sell agreement, funded by a Universal Life policy.

How Does it Work?

  1. The owners of the business enter into a shareholder agreement, which sets out all of the terms, conditions, rights and values associated with the disposition of the shareholders’ interests.
  2. They then purchase a Universal Life policy to fund the agreement. The policy can be set up in various ways depending on the needs of the shareholders.
  3. When a shareholder dies, the death benefit is used to transfer the deceased’s interest in the company to the surviving shareholder(s).
  4. The deceased’s estate receives the proceeds of the disposition which is distributed to the heirs according to the terms of the will.

Everyone Benefits

The death of a shareholder has a significant impact on the remaining shareholders, the business itself, and obviously on the family of the deceased. By entering into a Buy/Sell agreement, all three parties benefit…

  • The business benefits by the reassurance provided to the creditors, employees, investors and customers that business will proceed as usual.
  • The surviving shareholders retain full control of the business with out interruption or outside interference.
  • The family of the deceased gets a measure of financial security and liquid assets that can be invested for future income.

Using Universal Life to fund a Buy/Sell agreement is significantly cheaper than selling corporate assets, borrowing the needed funds, or using surplus corporate cash. To learn more about how you can help protect your business you can get a quick universal life insurance quote online to get an idea of premiums, but please contact us to help you determine the right policy for your needs. We would be happy show you how using Universal Life to fund a Buy/Sell agreement can help.

About the Author

Neil Lecky

Neil Lecky

Neil Lecky is a Life Insurance Advisor, Group Employee Benefit Specialist and an Investment Funds Advisor with Alliance Financial Group. He is also a Branch Manager and Investment Funds Advisor with Investia Financial Services Inc., a mutual fund dealer.

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Alliance Financial Group
Investia Financial Services Inc.