Buy & sell cover

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Business Insurance

What is buy-sell cover?

Buy & sell insurance provides a lump sum to a surviving shareholder or shareholders of a business in the event that one of the shareholders passes away.

You may have built a dream team of owners at work – but sometimes life has other plans. Buy & sell cover (also referred to as share purchase cover) protects the other surviving person – or people – in a business partnership when a partner dies. Ideally connected to a buy and sell agreement, this type of cover provides a ready source of funds to the surviving partner (or partners) to purchase the shares at stake from the deceased person’s estate, so you don’t end up in business with your business partner’s wife or kids – as lovely as they may be!

FAQs

Typically paid for by a business, the shareholders have buy and sell policies for each other. These can be structured differently based on your unique shareholding structure and it is possible to have joint policies – for example shareholder A and B might have a policy for shareholder C. The other thing to note here is that the policy should be for the entity that owns the shares – which could be a trading trust or similar – not simply the person themselves.
It’s not compulsory, but is strongly recommended, as things can get messy in the absence of one. Talk to a lawyer to draft one up for you and make sure that you agree a valuation method in there, which the insurance cover can then align to.
Regularly reviewing your insurance is vital. Business is forever changing, so it is important to check that the amount of cover stays in line with a current valuation. Talk to your advisor about the frequency with which you should look to update this.