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Buy and Sell Cover

Protect your shareholding in the business

If you are a co-owner in a business, you need to think about the consequences should you or any of your fellow co-owners pass away. If you are the one to pass away, it will most likely leave your estate severely exposed, and the remaining owners could also face potential problems.

Potential Challenges

For the deceased owner’s estate:

  • The remaining owners might not have the resources to purchase the shares from the estate.
  • The spouse may not want to participate in the business which means that he/she is left at the mercy of the existing owners.
  • The deceased owner may have had unique skills that he/she brought to the business, meaning that the risk in the business increases if those skills are no longer available to the business.
  • The deceased owner may have earned a salary from the business, and when he/she dies the spouse cannot simply claim that salary unless he/she actually works in the business on the same basis as the deceased owner.

For the remaining owners:

  • The executor of the estate of the deceased owner might interfere in a business which he/she knows nothing about.
  • He/she might want to sell the owner’s interest to the highest bidder, exposing the business to unknown external investors.
  • The existing owners may not have the funding to repurchase the deceased owner’s interest at that stage.

The alternative to insurance through a buy-and-sell arrangement is to borrow the money needed to buy the deceased owner’s share from a commercial bank. However, even if the business is successful in obtaining such a loan, the terms and repayment period could possibly make it unattainable from a cash-flow point of view. In most cases, insurance would therefore be the more affordable solution.

How It Works

The purpose of a buy-and-sell agreement is to provide the surviving co-owners with cash to purchase the interest of a deceased co-owner. According to the agreement, each co-owner takes out life cover on the other co-owners’ lives. The life cover pays out on the death of a co-owner, which funds the purchase of his or her interest by the surviving co-owner(s).

In the same way, disability cover can be included to fund the buyout of a disabled owner’s share of the business.

Complete the online enquiry form and one of our financial planners will contact you.

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