Life Insurance Funding of Buy-Sell Agreements

Written by Adam Peck Category: Injury Law January 14th, 2013 1 min read

A crucial issue for a closely held business that wishes to buy out one of its principal ownwrs is whether it will have the funds to do so. Because so few business have sufficient cash or other resources to fund a buyout, the seller usually must accept an installment payout and continue to share the risks of the future profitability of the business unless the business has provided for a fund to buy out the major owner.

There are essentially three methods for funding a buyout: borrowing from a party, setting up a shrinking fund or reserve, or acquiring insurance.

If the business has the borrowing capacity or available cash to fund a buy-sell agreement, the cost of life insurance should be comparted with the cost of borrowing money or using the company’s own funds. Insurance contracts are extremely competiviely priced and usually very cost effective. However, there are many factors to consider in making a comparison, including the ages and health of the insureds, which might push premium rates to the point that other options should be seriously considered, and the fact that the insurace may never be collected should retirement occur before death.

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Written by Adam Peck

Expertise: Personal Injury

Adam J. Peck, ESQ is a principal with Peck Law Group, APC. In 2008, Mr. Adam Peck received his Juris Doctorate from Whittier Law School where he graduated Cum Laude. His practice is primarily dedicated to representing Elders, Dependent Adults, along with their loved ones and family members, who have suffered horrific personal injuries.