If you are in a business partnership, life insurance can be used to fund what’s known as a ‘buy sell’ arrangement. If, for example, you own a business 50/50 with someone else. You might set up a buy sell arrangement that specifies that if one of you dies, the other will buy out the other to take full ownership of the business.
To fund this arrangement, the business takes out life insurance policies for each of you – with the sums insured equivalent to half the value of the business. In the event that one partner dies, the proceeds of the insurance policy are paid to the beneficiaries of the deceased – effectively cashing out their half of the business.
Full ownership of the business is then passed onto the surviving partner, without them having to find a large sum of money at short notice.
