In the world of business partnerships, planning for the unexpected is not just smart—it’s essential. One of the most effective tools for ensuring business continuity is a buy and sell agreement funded by life insurance. At Summit Life Insurance, we help business owners in Fort Lauderdale and beyond secure their future with customized policies that offer peace of mind and financial stability.
What Is a Buy and Sell Agreement?
A buy and sell agreement is a legally binding contract between business co-owners that outlines what will happen if one owner dies, retires, becomes disabled, or leaves the business. This agreement ensures a smooth transition of ownership and protects the interests of all stakeholders.
When paired with life insurance, this type of agreement becomes a powerful financial tool. The death benefit from a policy can be used to buy out the deceased owner’s share, allowing the surviving owners to retain control of the business.
Why Use Life Insurance to Fund a Buy and Sell Agreement?
Using life insurance in a buy and sell agreement guarantees that the necessary funds will be available when they are needed most. This method avoids putting a financial strain on the surviving owners or requiring loans during a potentially emotional and challenging time.
With Summit Life Insurance, you can structure the agreement to meet your business’s specific needs. The two most common structures are:
Cross-Purchase Agreement
Each business owner takes out a life insurance policy on the other owners. If one owner dies, the surviving owners use the policy’s death benefit to purchase the deceased owner’s share.
Entity Purchase Agreement
The business itself buys life insurance policies on each owner. If an owner dies, the company uses the insurance payout to buy back the deceased owner’s share.
Key Benefits of a Buy and Sell Agreement Funded by Life Insurance
At Summit Life Insurance, we help clients understand the full value of using life insurance in their succession planning. Here are some of the core benefits:
1. Business Continuity
The surviving owners retain full control of the business without financial strain or disruption to operations.
2. Fair Valuation
The agreement ensures a predetermined, fair price for the departing owner’s share, reducing conflict and confusion.
3. Liquidity
Life insurance provides immediate funds to execute the agreement, avoiding the need to sell business assets or take out loans.
4. Estate Planning
The deceased owner’s family receives a fair value for their share without being forced to participate in the business.
Who Needs Buy and Sell Agreement Life Insurance?
Any business with multiple owners should consider this type of agreement. It’s especially important for:
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Family-owned businesses
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Professional practices (doctors, lawyers, accountants)
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Closely held corporations
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Startups with equal partners
In Fort Lauderdale, businesses of all sizes turn to Summit Life Insurance to secure buy and sell agreements that protect their long-term success.
How Much Life Insurance Do You Need?
The amount of life insurance required for a buy and sell agreement depends on the value of each owner’s share. Valuation methods may include:
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Book value
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Agreed-upon value
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Independent business appraisal
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Earnings-based or asset-based formulas
At Summit Life Insurance, we work with legal and financial advisors to help clients determine an appropriate coverage amount and keep policies updated as the business grows.
Tax Considerations of Buy and Sell Agreements
Tax implications can vary depending on how the agreement is structured. Here are a few general guidelines:
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Death benefits are typically income tax-free to the beneficiary.
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The basis in the acquired interest may affect capital gains taxes.
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Premium payments made by the business may have specific tax consequences.
It’s important to consult with a tax advisor, but at Summit Life Insurance, we ensure your policy is structured with tax efficiency in mind.
Common Mistakes to Avoid
1. Not Funding the Agreement
An unfunded buy and sell agreement is essentially a plan without a way to execute it. Life insurance solves this.
2. Inadequate Coverage
Business values change—so should your life insurance. Review your policy regularly with your broker.
3. Not Updating the Agreement
Ownership structures, relationships, and valuations evolve. Ensure your agreement reflects current realities.
4. Ignoring Disability or Retirement
Life insurance is crucial, but your buy and sell agreement should also plan for other exit events like disability or retirement.
Why Choose Summit Life Insurance?
At Summit Life Insurance, we specialize in life insurance solutions for business owners. Here’s what sets us apart:
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Custom-tailored policies to suit your business structure
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Comprehensive support for valuation and agreement coordination
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Local expertise serving businesses in Fort Lauderdale and surrounding areas
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Ongoing policy reviews to ensure your coverage evolves with your business
We don’t just sell policies—we build protection plans that grow with you.
Final Thoughts
A buy and sell agreement life insurance policy is more than just a safeguard—it’s a commitment to your business’s future. With proper planning and the right insurance coverage, you can secure a smooth transition of ownership, protect your partners and loved ones, and ensure the legacy of your business remains intact.
Whether you’re just starting a business or planning ahead for succession, Summit Life Insurance is here to help guide you through the process with trusted expertise and customized solutions.
Secure your business’s future today—reach out to Summit Life Insurance for a tailored buy and sell agreement life insurance plan.
