Do I need buy sell life insurance?

Do I need buy sell life insurance? Well, it depends on what outcome you would like. Here’ the tale of two multi-owner businesses:


THE BAD

Janet and Lindsey are college friends that both hold engineering degrees and started a manufacturing shop together. They focus their attention on the niche market of supplying widgets to a variety of larger customers. Janet and Lindsey work quite well together. Janet is a much more talented sales person and has done wonders building solid customer relationships and marketing the company in their field of business. Lindsey on the other hand is much more technical and feels most comfortable problem solving much more intricate engineering issues to best fit client needs. Together, they have built a successful business valued today at around $2,000,000.

Tragically, one foggy morning Lindsey is heading to the office and another auto crosses the center line. By the time the two drivers see one another it’s too late, they collide head on and Lindsey doesn’t survive the accident.

Weeks after the accident, after the funeral is over and such, Janet now finds herself without her trusted business partner.

To make matters worse:

A) Lindsey’s husband Brent now owns Lindsey’s half of the manufacturing company. Brent is well aware that half of the company is worth around $1,000,000, and Brent wants Lindsey to buy him out. The company doesn’t generate that kind of cash, and Janet and Lindsey had been reinvesting profits back into the company to grow it so she doesn’t have that kind of money on hand. Janet is now forced to seek financing options, which she is having trouble doing because Lindsey was the technical expert of the company and she’s no longer around to help the company run. If she can’t get the financing, she may have to sell the company to a larger competitor. She may have to do so regardless though.

B) OR…now that Lindsey’s husband Brent owns half of the company, he expects to be an equal partner. Brent doesn’t have a background in either engineering or marketing, but Brent seems to think he knows it all. He starts changing things. Telling customers incorrect information, making promises that can’t be upheld, rubbing employees the wrong way, and really adding nothing of value to the company. The company’s reputation, and soon it’s financials begin deteriorating rapidly. Now the once successful business is in shambles.

THE GOOD

On the other side, Helen and Rose are college friends that also both hold engineering degrees and started a manufacturing shop together. They focus their attention on the niche market of supplying rotary pistons to a variety of larger customers. Helen and Rose also work quite well together. Helen is a much more talented sales person and has done wonders building solid customer relationships and marketing the company in their field of business. Rose, like Lindsey, is much more technical and feels most comfortable problem solving much more intricate engineering issues to best fit client needs. Together, they too have built a successful business valued today at around $2,000,000.

Tragically, one foggy morning Rose is heading to the office and another auto crosses the center line. By the time the two drivers see one another it’s too late, they collide head on and Rose doesn’t survive the accident.

Weeks after the accident, after the funeral is over and such, Janet now finds herself without her trusted business partner.

Fortunately, Helen and Rose planned ahead. Years ago, Helen and Rose sat down and created a buy sell agreement just for scenarios like this. They backed the agreement with life insurance policies on both Helen and Rose. Each in the amount of $1,000,000.

When Rose passed away, the death benefit on Rose’s policy of $1,000,000 was paid to Helen tax free. Helen then in turn, in accordance with the signed buy sell agreement, was able to pay Rose’s husband Brent – Rose’s share of the company. While the loss of Rose will remain significant to the future of the company, Helen should be able to afford making another hire without having a huge debt being owed to Brent.  After awhile, despite the tragedy – the business does survive and continues to flourish, and Rose’s heirs were properly compensated for her share.


Joseph D. Beck is a license life & property casualty agent for Ohio, Indiana, Michigan, Georgia, Florida, Pennsylvania & Tennessee.  Mr. Beck also holds a Certified Insurance Counselor designation and a Certified Personal Risk Manager designation, which specializes in risk management for high net worth personal clients.

For more information please contact Beck Insurance Agency, Inc., at 419-446-2777, email your inquiry to help@beckinsurance.com, or click here.