What is a buy-sell life insurance policy?

One common question we receive when discussing key person benefits is “What is a buy/sell agreement?” A buy/sell agreement, also known as a buyout agreement, is a contract funded by a life insurance policy that can help minimize the turmoil caused by the sudden departure, disability or death of a business owner or …

What type of insurance is used for buy-sell agreement?

Life insurance
Life insurance is an effective tool that business owners can use to implement the provisions of a buy-sell agreement by providing liquidity at the death of an owner to both his or her business and family.

Is buy-sell life insurance tax deductible?

Premiums paid for life insurance to fund a buy-sell agreement are not tax deductible; however, the death proceeds are generally excluded from federal income tax when the notice and consent requirements have been met.

Are buy-sell agreements income taxable?

Generally, buy-sell agreements are structured either as “redemption” agreements or “cross-purchase” agreements. Also, if the remaining owners fund the purchase with life insurance, the insurance proceeds are generally tax-free.

What’s a buy/sell life insurance agreement?

In a buy-sell agreement, partners or stockholders buy life insurance equal to the respective shares of the other stockholders . The premiums are paid by the company, and if a stockholder dies, the death benefit is used by the surviving stockholders to “buy out” the shares belonging to the deceased’s heir(s).

What is selling life insurance?

Selling a life insurance policy involves selling the policy to another entity or investor. That buyer becomes the owner of the policy, pays the premiums, and receives the death benefit when you die. This process is also referred to as a life insurance settlement or a viatical settlement.

How is life insurance sold?

Life insurance was once sold primarily by career life agents, captive agents that represent a single insurance company, and by independent agents, who represent several insurers. Now, life insurance is also sold directly to the public by mail, telephone and through the Internet.