When it comes to protecting your business interests and ensuring continuity in the event of a partner’s death, a buy-sell agreement is a crucial tool. Many businesses choose to include life insurance as a component of their buy-sell agreement, ensuring that funds are readily available to purchase a deceased partner’s stake in the company.
But drafting a buy-sell agreement with life insurance provisions can be a complex process, with many factors to consider. To help you get started, we’ve compiled a life insurance buy-sell agreement sample that covers some essential details.
Life Insurance Buy-Sell Agreement Sample
The following sample buy-sell agreement is intended for use by two partners in a business, but can be modified to suit other arrangements.
Article I: Purpose
The purpose of this agreement is to provide a mechanism for the orderly transfer of ownership in the event of the death of one of the partners.
Article II: Triggering Event
The triggering event for this agreement is the death of one of the partners. Upon the death of a partner, the surviving partner agrees to purchase the deceased partner’s interest in the business.
Article III: Purchase Price
The purchase price for the deceased partner’s interest in the business will be determined by an independent appraiser within 30 days of the triggering event. The appraiser will be chosen jointly by the surviving partner and the executor of the deceased partner’s estate.
Article IV: Payment Terms
The purchase price will be paid out in a lump sum, with 50% being paid by the surviving partner and 50% being paid out via life insurance proceeds. The life insurance policy will be held by the business, with each partner named as a beneficiary for the other.
Article V: Funding the Life Insurance Policy
The life insurance policy will be funded by the business, with each partner contributing an equal amount towards premiums. The policy will be reviewed annually to ensure that coverage is adequate.
Article VI: Buy-Sell Agreement Termination
This buy-sell agreement can be terminated by mutual agreement of the partners, or by the sale of the business to a third party.
Conclusion
While this is just a sample life insurance buy-sell agreement, it covers some of the most important details that should be included in any such agreement. Of course, it’s crucial to work with a lawyer and an insurance professional when drafting your own agreement, to ensure that it meets your unique needs and is legally enforceable.
With a well-crafted buy-sell agreement in place, you can protect your business and ensure that the future of your company remains secure, even in the event of an unexpected loss.