Succession Planning 101: The Buy-Sell Agreement (And How To Fund It)

One of the foundational elements of succession planning is the buy-sell agreement. This is essentially a contract in which one party agrees to buy the business at an agreed price or valuation in the event of the death or disability of the owner. 

A buy-sell agreement among partners ensures capable management of the business and fair compensation for loved ones in case of death or disability.

But where does the money to buy the business come from? Usually, life insurance: each partner takes out a life insurance policy on each other partner sufficient to buy out their interest in the business. 

If you or a partner should die, the insurance policy pays out in days. The deceased partner’s family gets cash, and your business keeps functioning smoothly with the remaining partner(s).

Solo practitioners don’t have partners, of course. In this case, you can work out a buy-sell agreement with a colleague or key employee.

Buy-sell agreements are typically drawn up by attorneys. But once you have an agreement in place, your HSA for America Personal Benefits Manager is an insurance expert and can help you design and implement the insurance policies needed to fund it. 

When a DPC Owner is Disabled

Life insurance policies pay out on the death of the insured. But what about if a partner is just disabled? 

Your buy-sell agreement can address that, too. If one partner is unable to continue practicing due to disability, there are special disability insurance policies designed specifically for buy-sell agreement situations.