Life insurance has quickly become a topic that grabs the attention of many Americans in present day society. It has become a topic of controversy simply because not everyone that should be covered by a life insurance policy is insured. It is true that death can come to anyone at anytime in any place, but the truth is that it has become a necessity to be covered by life insurance to protect those you care about after you are long gone.
Most families make the decision of purchasing life insurance coverage when they marry because they feel like in case of an accident their significant other can be good economically, others prefer to wait until they have children because the kids’ future is way to important to take for granted. The truth is that today not only a great number of Americans are lacking life insurance coverage, but most of them that do have life insurance are not covered enough, in order for their love ones to be fine in case of an accidental death.
The main idea behind life insurance is to create a sum of money that can be payable to your loved ones in case of an accident, that will replace the economic loss suffered after the person’s death. There are many types of life insurance; however, we will be focusing on that of Buy Sell Agreement Life Insurance. This kind of insurance is mostly used for people that own their own business or have shares and are major policy holders of a business or corporation.
What would happen to the company if the person who owned the business dies? Will the deceased family be taking care of after they die? Who will get the assets of a partner in a corporation in the case of an accidental death? There are just some of the questions people that are taking part in any business activity should ask themselves before deciding to purchase life insurance. The fact of the matter is that life insurance could only help in the event that any unfortunate event happens.
After a terrible event happens in a company, institution or partnership many things can arise. Employers can quit due to the fact that they don’t know in which direction the company is headed. Creditors and suppliers of the business may be lost because they might think that the company won’t be as successful without that key member in it. Business and corporations need to have a back up plan when unfortunate circumstances arise and this is when Buy Sell Agreement Life Insurance comes into effect.
It is one of the most important things to possess if you want your business to have a smooth transition in the event that an accident occurs. A Buy Sell Agreement is simply a contract between business owners before an accident actually happens. The agreement will simply states that if anything was to happen to the person or the people in charge, the business interest would be transferred as states on the contract.
This agreement is significantly important because the other owners or owner will be obligated to buy the remaining interest held by the deceased person’s heirs or wife. In turn however, the deceased person’s wife or heirs will have to sell those same interests to the other partner or partners. In conclusion, the Buy Sell Agreement is simply a contract stating the buying and selling of the capita left by the person that passed away between his/her loved ones and his/her partners.
It is important to understand that as simple as this sound it is actually very tricky. There are three ways in which business owners can approach a Buy Sell Agreement when they do decide that one is necessary for their company. Below are just some of the three methods of funding that can be used by a business owner when deciding on a Buy Sell Agreement:
Wait and See (Pay Cash): This method is quite simple to explain. Under it, surviving owners of the business can used cash money at the time of a co-owners death to fund the Buy Sell Agreement. There are many drawbacks to this option however, as funds might not be available right after the co-owner’s death, and accumulation of cash in a savings account can easily create an accumulated earning cash problem.
Wait and Borrow Funds: With this method of funding, surviving partners will borrow funds, specifically bank loans after the death of a co-owner in order to fund the Buy Sell Agreement. Much like the option described above, this one has major setbacks. With the death of a co-owner sales can decline, thus not allowing you to repay the debt and eventually taking the company out of business. Another thing that can happen is that a survivor owner has to put it all on the plate in order to receive the loan, hence exposing personal assets that can be lost if the business doesn’t keep doing well. Lat but not least the future growth of a company can decrease dramatically due to the fact that the loan has to be repaid and there is not enough money for the rest of the expenses.