This type of policy offers a way to use life insurance to buy out a partner upon their unexpected passing. This option helps reduce the stress and upheaval that often follow this kind of unfortunate event. There are two main types:
- A cross-purchase plan is when each owner takes out a life insurance policy on all of the other business partners. Then if an owner were to pass away the policies taken out on that individual could be used to purchase their portion of ownership in the company.
- Entity purchase, otherwise known as a stock redemption plan, involves an agreement where the business buys life insurance policies on each of the owners and then each owner agrees to sell their amount of investment in the company. This way if an owner were to pass away, the business could use the policy to purchase that owner’s portion in the company.