Question

A buy-sell agreement is a legal contract between owners of a business. It does not require the purchase of life insurance. However, many times the owners do choose to purchase life insurance. What is the advantage of purchasing life insurance in a buy-sell arrangement

Answer 1

What is a buy-sell agreement?

sol:- buy and sell agreement is a legal contract use to re allocate the shares of a business if an owner leaves the business or dies.This is also known as buy sell agreement, a buyout agreement, a business will or business pren up. These agreements are used by sole proprietorship, close cooperation and partnership firms. in buy and sell agreement, the owner of the business interest are being considered for disables , retire, deceased or have shown interest in selling. The buy and sell agreement requires that the business share is sold to the remaining member of the business or the company according to the predetermined formula.

What is a life insurance policy?

sol:- It is an agreement between the policy holder and the life insurance company in which the insurer guarantees payment of a death benefit to the nominee or the named beneficiaries in the agreement upon the death of the policy holder. In this agreement the policy holder needs to pay premium annually without fail.

what is actually the purpose of buying the life insurance policy?

Sol:- Businesses or life do not like uncertain events because it hampers the continues cash flows. Continuous cash flows are important to run the business successfully and in profit. The one an only main purpose of buying the life insurance is to provide financial protection to the survivors/dependents after the death of the insured.

by looking at the above explanation, we can easily conclude that owners do purchase life insurance in a buy sell agreement to safe guard the company's constant cash flow, payment to lenders, banks, shareholders if any mis-happening occurred. The business could run smoothly or wind up easily after the owner's demise.