Fund Your Buy Sell Agreement With Permanent Or Term Life Insurance
If you are a business owner, chances are you have life insurance policy
. But a buy sell agreement ads further protection for the longevity of your business. A buy sell agreement is a type of agreement that works along side a life insurance policy. The way a buy sell agreement works is if a business owner dies, the surviving owner (or owners) would require funds to purchase the deceased's share of the business. The agreement would supply the funds.
The following discussion will focus the different options you have for funding a buy sell agreement.
There are two typical options one can use to fund such an agreement. The first option is a term policy, which will terminate after certain duration of time (unless the insured has died). The second option is a permanent policy, which will last indefinitely until the benefit is paid out. Both of these policies of course are dependent upon regular premium payments, as both can lapse without them.
Term life insurance only provides a death benefit it the insured passes away during the policy term. While this may seem like disadvantage, however term life insurance is the most simple and affordable life insurance option. If the need for life insurance coverage is only temporary, this would be an excellent option for funding your buy sell agreement.
Permanent on the other hand does not have a term date and will remain in force as long as premiums are paid. Another advantage to this type of policy is that it has a cash value account. This account can be compared to an investment or savings account that is attached to your policy. This means that your policy can provide funds with or without the death of the business owner. This type of coverage is more expensive than a term policy would be.
How does it work? Each time a premium is paid it accumulates interest over time and increases the cash value of the account. The details of your particular policy will vary based on the type of permanent coverage you opted for and will be outlined in your policy paperwork. All permanent policy types can be surrendered, this means that you can terminate the policy and collect the cash value amount.
A buy sell agreements is a great way to ensure the longevity of your business, even with the loss of a business owner. Life insurance is a great tool for not just providing for families, but also for providing for business needs. This kind of agreement can be personalized to fit purchaser's needs.
by: Angela Rosas
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