As a successful business owner you do not like surprises – especially when it comes to money.
That’s why it is important to plan for unexpected events that may affect your business. Have you thought about what would happen if one of your co-workers were to die unexpectedly? Where would you get the money to buy out his or her share of the business?
Cross Purchase Arrangements Using Life Insurance
Cross Purchase Arrangements are one way you can help ensure the continued success of your business so that you can focus on what you do best – taking care of business.
In a cross purchase arrangement, business owners agree among themselves to collectively purchase the interest of any owner who dies. Using life insurance policies to fund the buyout, each business owner purchases a life insurance policy on all the other owners. At the death of an owner, the surviving owners receive the policy proceeds and then purchase a pro rata share of the deceased owner’s business interest from his or her estate. The result is that the estate’s non-liquid business interest is converted into cash and the surviving owners now own 100 percent of the business.