A so called Buy-sell life insurance agreement is a policy intended for partners in a business arrangement, where one insures the life of the other. In other words a buy-sell life insurance guarantees that funds are available to buy out the partner’s share should he/she die. This can be achieved through a term policy or a whole life policy. In either case the transition of the share is a lot smoother.
Buy-Sell Life Insurance Benefits
Every business should have some form of a Buy and Sell Agreement. A good and detailed description of what a Buy and Sell Agreement is can be found here. Buy-sell life insurance provides the funds for the transition as stipulated in such an Agreement. Its advantage is that although the premiums are not tax deductible, the paid out death benefit is and can take care of the price of the business share, as well as the family of the deceased partner.
A commonly used strategy where in a partnership each partner takes a life policy on the other partner. In this case the partnership is the insurable interest, which allows this. Each partner thereby secures funding for a buy-sell agreement. You should do this as close to the establishment of the partnership as possible.
Theses are important decisions and you must always consult them with your tax adviser or financial specialist first