The Ultimate Assurance Of Buy-Sell Agreements - guaranteed buyer of business in case of death or disability - Abstract

Nation's Business, March, 1999 by Juan Hovey

Whistler placed two disability and two life-insurance policies on each partner-12 policies in all. For each partner, one of the two disability policies is payable directly to the partner, guaranteeing him an income in the event of disability. The second policy is payable to the company, giving the other partners the wherewithal to buy the disabled partner's stake.

In contrast, both life-insurance policies on each partner are payable to the company. Funds from one would buy out the deceased partner's interest; funds from the other would finance the search for a replacement.

One of the life policies on each partner is term insurance, the other is cash-value insurance. A partner who retires can draw on that cash value to supplement his pension.

'Too Busy Dunning Their Companies'

Clearly, Whistler says, it takes some planning to put together a buy-sell funded by life and disability insurance, and many business owners use the complexities as an excuse to avoid the job altogether. "Most business owners are too busy running their companies to think about these things," Whistler says. 'They deal with inventory and sales and payroll, and they don't take the time to think about what would happen if they weren't around. And no one wants to spend money on insurance if they don't perceive the value of it.

"But it's better to decide now what to do if disaster strikes because if you wait until it does, it's too late."

In any case, he adds, insurance covering both disability and life is crucial to a good buy-sell agreement. Without the insurance, he says, the surviving partners in a business have no means with which to carry out their commitment to buy the interest of the missing partner.

Leimbach agrees. "I looked at these policies and I said, 'Gosh, these things are expensive.' But you buy insurance for things you hope don't happen. These policies make it easier to sleep at night."