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As discussed in the first article of this three part series, life insurance is the preferred funding option in a majority of buy-sell agreements. In the event of death, life insurance provides funding and the proceeds are received tax-free. There are many ways to structure an insurance financed buy-sell agreement.
This buyout strategy is typically funded by a life insurance policy on each partner purchased by the business. If a partner passes away, the ownership interest is split between the remaining owners, with the death benefit payment from the policy used to compensate heirs.
One major advantage of a cross-purchase agreement is that it protects the death benefit of the life insurance policy from creditors or lenders.
When using life insurance with a buy-sell agreement, either the company or the individual co-owners buy life insurance policies on the lives of each co-owner (but not on themselves). If you were to die, the policyowners (the company or co-owners) receive the death benefits from the policies on your life.
A Retirement Buy-Sell arrangement, funded by permanent life insurance, can help business co-owners make sure that they, their families and their business are set up for the future, even if one of the co-owners: Passes away unexpectedly. Becomes disabled. Decides to get out of the business.
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A stock purchase agreement is a contract under which a seller transfers stock of a corporation to a buyer .
Fair Valuation: Having a life insurance-funded buy-sell agreement can help aid the business in being fairly valued, as the insurance payout can bridge the gap between market value and family expectations.

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