Life Insurance in Florida and the Buy-Sell Agreement

If you own a business, then you have likely put plenty of hard work into making sure that your business provides income for you and your family, jobs for your employees, and perhaps even a stream of income for your shareholders. You may have also set up what is known as a buy-sell agreement in order to protect your family in the event of your death. Your life insurance in Florida may actually help in making sure the buy-sell process is a smooth one.

How the Idea Works

In order to use life insurance in Florida along with a buy-sell agreement, each of the co-owners of the business will need to take out life insurance policies on all of the other co-owners, excluding themselves. If there are no co-owners, then the policy can be purchased by the company itself. In the event of your death, then each of the co-owners of your business, or even the company, would receive a benefit based upon those policies. This money would go to your family to assist them after your death and your company’s continuity would be ensured. It is important to consider, however, that there are some advantages and disadvantages to doing things this way.

Advantages

Some of the advantages of using life insurance in Florida alongside your buy-sell agreement include the creation of a lump sum of money to fund the buy-sell agreement after your death and the fact that most life insurance proceeds are also tax exempt.  Since the funds from life insurance policies are generally paid fairly quickly, the buy-sell transaction will not have to be postponed. Finally, if you have managed to build cash value in your life insurance policy, then this can be used in the event that you need to step away from your company for the purposes of disability, illness or even retirement.

Disadvantages

There are also a few disadvantages to consider before you purchase. While the proceeds from the payment of the benefits are tax-free, the premiums must be paid with after-tax dollars because they are not tax exempt. In order to keep the policy effective, payments must be made regularly and on-time. In the event that the co-owners of the business are purchasing policies on each other, it must be considered that some co-owners may be uninsurable due to age or illness. Finally, if the ages of all of the co-owners vary a great deal, then the younger co-owners will be paying much higher premiums for the older co-owners.

Final Considerations

There are a few other things to consider when it comes to using life insurance in Florida to back up a buy-sell agreement. If you choose to go this route, then you should make sure that the policy or policies you purchase fully fund the agreement. It is also important to remember that the value of your business can change over time, so you will want to review your insurance policies annually to make sure that you are not overpaying – or perhaps even underpaying in the event that your business grows.

While it is a good idea for many companies to use life insurance in Florida to fund buy-sell agreements, you should never use your company’s group life insurance to do this. These premiums are tax deductible for your company, but if you choose to make the business itself the beneficiary, then this is no longer the case.