BDI Types of Buy-Sell Agreements
The Insurable Interest
The Buy-Sell Agreement
Such an agreement demands that a disabled business owner must sell his/her ownership in the firm either to the firm, or to the non-disabled owner(s), and the non-disabled owner(s) must buy at the price established by the agreement.
The Buy Out Agreement
A person contracts to buy out the business ownership of another person. The seller may require insurance on the buyer to offset the contingency of disability, which could render the buyer financially unable to complete the purchase and to continue the operations of the firm. The weakened firm’s value will drop making it difficult to find a new buyer.
The Buy-In Agreement
A person contracts to buy into the ownership of a business. The buyer may insure against becoming disabled and being unable to complete the purchase.
Funding the Buy-Sell Agreement is a form of business insurance about which much has been written and spoken.
Agreements between people as to the buying or selling of professional or business firms are fraught with hazards that can be offset by disability and life insurance. The Buy-Sell Agreement has been studied, discussed and used in whole or in part since 1957. It was then that disability Insurance became recognized as a very important part of an intelligently planned agreement.
The first cousin of the Buy-Sell Agreement is an agreement that recognizes the hazards involved in the buy-out and buy-in situations. There are many of these agreements entered into daily. There are firms whose business is that of helping owners and want-to-be owners put an agreement together.
Petersen International has developed underwriting that enables it to custom design disability coverage to fit these many varied situations. Buy-In and Buy-Out disability coverage is very rare, far more so than Buy-Sell Insurance. It presents prospecting and growth opportunities.