Sometimes things don’t work out as we expect. So it’s prudent to have an exit strategy in place.
Key Buy Sell cover (also referred to as Share Purchase or Partnership protection) is a key part of a prudent business exit strategy designed to provide protection for the remaining business owners and the family or estate of the life insured in the event of the life insured’s death (or disability). Owners will exit businesses for one of four reasons (4Ds):
Whilst divorce and departure are voluntary, death and disability are not. Furthermore, death is inevitable…it’s not a question of if, but when! With this in mind prudent business owners will put in place appropriate exit strategies for each of the 4Ds and the most common and efficient way of funding the exit strategy in the event of death or disability is buy sell cover in conjunction with the appropriate documentation to support it (usually in the form of a buy sell, shareholders or partnership agreement). In short, buy sell cover makes sure sufficient funds are available to compensate the family/estate of the life insured for the transfer of the life insured’s share in the business to the surviving business owners, without further cost to the those same business owners.
Funding the buy sell via life insurance (and TPD), means the financial impact on the business and surviving owners is minimized and the business can continue with minimal disruption. The alternative is that the surviving owners have to dig into their own pockets and fund the buyout of the life insured’s family or estate or that they continue in business with the family or estate of the life insured. The latter is often not a desirable (or viable) alternative.