Whether it’s a change in business direction or the sudden loss of an owner or partner, this transition has very significant impacts on financial security, operational continuity, and long-term survival in competitive markets.
Every enterprise requires adequate protection to cope with necessary transitions in ownership and stock sharing, especially in the face of the sudden loss of key personnel.
A buy-sell agreement guarantees financial security by stipulating the allocation of the shares or interests left by a deceased, retired, or resigned owner or partner.
In some cases, these shares are inherited by survivors or named beneficiaries, as outlined in a succession plan; however, if these heirs have no interest in assuming control over shares or taking a position in the company. The remaining owners may have to purchase these shares to retain majority ownership, rather than bring in an outside investor. This financial support is especially important in preserving tight-knit partnerships.
Support for Remaining Owners
Buy-sell insurance provides remaining partners with the necessary capital to afford the purchase of the shares previously owned by a deceased, disabled, or resigned fellow owner.
Rather than pay for these expensive acquisition costs out-of-pocket, a buy-sell insurance policy enables remaining owners to assume ownership of these stocks, while compensating the survivors and beneficiaries of their colleague.
How Buy-Sell Insurance Works
Just like life or disability insurance, buy-sell insurance pays out a tax-free death or disability benefit. The resulting amount can then be used by remaining owners to fund the purchase of the stocks previously owned by a deceased, disabled, or resigned partner.
This fulfills stipulations in the buy-sell agreement without causing personal financial losses to existing partners.
Oegema Nicholson works with businesses to design a buy-sell insurance policy tailored to their financial status, ownership makeup, and goals for long-term survival and succession.
Our guarantee is a custom-crafted policy that supports the future of your business by preserving reliable tight-knit partnerships while protecting the financial interests of each owner’s policy.
Benefits of Buy-Sell Insurance
Buy-Sell insurance provides financial cover for fulfilling the stipulations of a buy-sell agreement, thereby keeping ownership and business relationships intact in the face of loss.
Each custom-crafted policy provides these leading benefits:
- Buy-out interest: provide remaining partners with a cash benefit that can be used to buy out the shares of a deceased, disabled, or resigned owner.
- Flexible policy ownership: a buy-sell insurance policy may be acquired by the business acting as a corporate entity, or by individual owners who can own a policy on each of their partners.
- Act as a business asset: prevent the need for the use of personal funds and resources to fund the buy-sell agreement and instead leverage the benefit paid out for the acquisition of vacated shares.
- Tax-free proceeds: the benefits paid out to the survivors of a deceased partner are tax-free, ensuring access to maximum financial resources.
- Optional coverage: a buy-sell insurance policy provides coverage for either term or permanent life insurance and disability insurance — both guarantee benefits that can fund a buy-sell agreement once activated.
Benefits for Surviving Heirs
In the case of death of a partner, the amount paid out from a buy-sell insurance policy is often directed to their surviving heirs or beneficiaries, as they are poised to inherit the assets of the deceased partner. Thus, a buy-sell agreement — and accompanying insurance — benefits all parties involved, as surviving families will also earn essential financial support.
Alternatively, they can also use the amount awarded to purchase or redeem their deceased family member’s shares without using personal funds. Remaining partners are assured of financial stability and business continuity as these transactions are solely funded by the benefit from a buy-sell insurance policy rather than personal savings.
Who Needs Buy-Sell Insurance?
Buy-sell agreements are often used in enterprises built on partnerships and lasting business relationships of various collaborators. This is a necessary — and beneficial — investment for companies that are:
- Owned by more than one owner, or is the result of the collaboration of multiple partners and shareholders
- Looking for a sustainable and affordable solution for funding a buy-sell agreement in the event of an exit by a part-owner, without using personal assets of remaining partners
- Operating in volatile or high-stakes environments wherein collaborators are exposed to potentially hazardous situations leading to death or disability, or evolving enterprises that may see the movement of key personnel in the event of restructuring or dissolution of certain partnerships.
Accessing Buy-Sell Insurance Benefits
Depending on your company’s buy-sell agreement, the benefits from the corresponding policy may be paid out in different ways.
Your custom-tailored policy will indicate the specific period as to when benefits will be paid out following death or disability.
Protect Business Relationships with Oegema Nicholson
Our insurance experts at Oegema Nicholson are well-versed in the intricacies of partnership agreements, including buy-sell arrangements.
Equipped with reliable industry insights, we work to craft sustainable buy-sell insurance that helps your business secure lasting relationships and protect ongoing collaborations despite the loss of one of your partners.
You can count on Oegema Nicholson to provide detailed assistance and comprehensive coverage that allows you to fund buy-sell agreements solely with the use of business assets. With a sustainable buy-sell insurance policy, we can help you protect the future of your enterprise as you navigate sudden losses and changing partnership dynamics. In fact, if there’s one thing you can count on not to change, it’s our constant commitment to helping you secure your business’ financial health in the face of massive transitions.
For more information on buy-sell insurance and navigating changing business partnerships, call Oegema Nicholson (613) 224-1455 or contact us here.