If you’re a small business owner, you know what hard work means. It means sacrifice. It means connecting to people in the right way at the right time—often during the early morning, in the evening and on weekends. It means putting your business before anything else (even, at times, family). It means being your brand and being on, all the time.
That kind of significance carries extra weight that business owners don’t always realize. What happens when a partner unexpectedly has to file for bankruptcy? Or becomes disabled? Or worst of all, passes away?
Here at Erie Insurance, we’ve seen a number of unfortunate happenings that have affected businesses just this past year—from a 49 year-old business owner who was hit by a car while training for a marathon; to a 25-year old who passed tragically after a car accident; to another who unexpectedly suffered a heart attack.
These are stories of independent insurance agents who represented ERIE—people we partnered with to help customers find customized solutions right for them.
Like all small business owners, ERIE’s agents are committed to doing business in their local communities. They volunteer across numerous organizations, provide jobs and advocate for their customers to help them find the best insurance for them. And also like most small business owners, they are missed by many when they unexpectedly pass.
Because they are independent business owners, we encourage our agents to have a plan in place for when they retire and which can be used if life does not go as planned—something that provides guidance for what they want their business to become.
As your insurance advisor, they most likely advocate that you have a plan in place as a business owner, too, particularly a buy-sell agreement funded by life insurance.
Here’s some information to help you with the conversations about buy-sell agreements and tips for putting one in place:
- What it is: A buy-sell, or buyout, agreement is a legally binding document that determines how ownership should be handled should a co-owner unexpectedly leave the business, whether through death, disablement or other unexpected circumstances.
- What they should include: A good buy-sell agreement should include a current business valuation clause that allows an expert to assess the value of the business if needed. It should also include who can and can’t be a buyer and how any sale of ownership will be funded—i.e. through proceeds from life insurance, credit or cash.
- How life insurance can help: When co-owners own life insurance policies on each other that name themselves as beneficiaries (a cross-purchase agreement), life insurance can help pay for a partner to buy the portion of the business that lost an owner if that person passed away. Without this funding, a partner may not be able to afford to buy the portion of the business they’ve worked so hard to build. Instead, the ownership may transfer to the previous owner’s spouse, family member or even a bank or lender associated with the partner who passed. There are also entity agreements designed for LLCs and c-corporations where the company owns the insurance and the buy-sell agreement stipulates the company will buy the deceased owner’s shares.
Consult appropriate, legal, accounting and business professionals and talk to your local ERIE agent today about how life insurance can help you in building this important plan.
Products and services are provided by Erie Family Life Insurance Company, a member of Erie Insurance Group, and are not available in New York. See individual policies for specific coverage details. Certain terms and limitations may apply.
Neither Erie Family Life nor its Agent representatives give tax or legal advice. Please consult your attorney or tax advisor for answers to tax-related questions.