What is a Buy-Sell Agreement
These concerns can all be addressed with a buy-sell agreement. This is a contract among business owners that, upon the death of one of the owners, requires the remaining owners or the company itself to purchase the deceased's interest in the company according to the agreed upon terms of the contract. The heirs of the deceased are required to comply by selling their inherited interest at the previously agreed-upon price.
Ways to Fund a Buy-Sell Agreement
While Insure the Lake recommends taking out a life insurance policy to fund a buy-sell agreement, there are 3 potential ways to fund a buy-sell agreement:
1. Pay Cash
Paying cash may require large sums of assets that may not be available. In some instances, the funds may need to come from personal or business assets. Either way, if any assets must be sold, will their fair market rate be readily available?
2. Borrow the Money
The loss of an owner, especially a key person, may impair the credit rating of the business. The principal PLUS all the interest must be repaid and could place a tremendous strain on the budget.
3. Purchase a Life Insurance Policy
The best way to fund a buy-sell agreement is through life insurance. This ensures that funds will be immediately available when a death occurs; plus, death benefit proceeds are generally income tax free. In addition, the funds used to buy the deceased's share are purchased for pennies on the dollar.
Benefits of Funding with Life Insurance
For the deceased owner's family, having a life insurance policy for the buy-sell agreement ensures their business is sold at a fair price. It provides a ready buyer for their business interest, cash to replace lost family income and cash to pay estate settlement costs. For the surviving business owners, having life insurance to fund the buy-sell agreement ensures continuity of business operations. It also provides means to buy out the deceased's business interest with income tax-free death benefit proceeds. This option removes heirs of the deceased from future involvement and may be the most economical funding method possible. Although an insurance agent can help you with the funding tool, be sure to consult with your tax and legal advisors when creating the actual agreement to make sure it is valid and follows the laws of your state.
Insure the Lake understands the complexities of buy-sell insurance policies and is here to help protect your business, your assets and your family! Your business is your financial future and our office will work with your business in order to provide you with the best insurance to cover your unique situation. Contact our Lake of the Ozarks insurance company today at 573-348-2794.

Steve Naught, CIC
NAUGHT-NAUGHT AGENCY
3736 Osage Beach Parkway
Osage Beach, MO 65065
Next to Golden Coral
Osage Beach, MO 65065
Next to Golden Coral
T: 573-348-2794
F: 573-348-0191
F: 573-348-0191
stnaught@naught-naught.com