What is Buy/Sell Insurance?

When a company has a Buy/Sell agreement between the owners or partners, it is important to ensure that agreement is funded with insurance so the company and or owners/partners do not need to sell assets to fund the payments if the buyout agreement is triggered.

Buy/Sell Life insurance

Life Insurance will provide a lump sum, tax free payment to the business or partners in the event one of the insured owners or partners passes away. You can choose between Term, Whole Life, and universal life insurance to fund the Buy/Sell Agreement. If you expect a partner to leave the company in 10/15 years, Term may be a good option for this insurance as you will keep your costs low. If the need for insurance is longer or you want it to extend beyond the time when the Buy Sell Agreement is valid Participating Whole Life, or Universal Life Insurance may be more appropriate as both have long term savings capacities.

Buy/Sell Disability Insurance

Buy/Sell Disability Insurance can provide a monthly payment, a single lump sum or a mixture of both in the event one of the owners or partners is disabled and unable to participate in the operations of the company. This is a completely different product from Disability overhead insurance and should be looked at only to fund a Buy/Sell agreement in the event a buyout is triggered.

Ownership of Buy/Sell Insurance Policies

The owner of the policies depends on how the buy sell agreement is structured, sometimes ownership is laid out in the agreement and other times it is not. The business can own the policies, or each owner or partner can own a policy on each of the other owners or partners. We don’t have a favourite way to structure the ownership, it all depends on how the owners of the corporation or entity want to structure the policies. We always recommend getting professional legal help when setting up a Buy/Sell agreement and will always defer to a lawyer when it comes to the structure of a buy sell agreement.

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Authorized distributor for The Canada Life Assurance Company, Equitable Life Insurance Company, The Manufacturers Life Insurance Company, and Pacific Blue Cross. Manulife & Stylized M Design, and Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license.


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