Types of Buy-Sell Agreements
When you want to create a buy-sell agreement within a company, there are two major ways to establish it. The first is known as a Cross-Purchase Plan, while the other is known as a Stock Redemption Plan. In a Cross-Purchase Plan, the owners of a company buy life insurance on each other; with the owner of the policy also being the beneficiary. Upon the death of one of the owners, the life insurance on the deceased owner funds the purchase of their interest.
In a stock redemption plan, the company owns the life insurance on the owners. When one of the owners dies, the life insurance funds the purchase of the deceased owner’s interest. The share of the surviving owner’s interest increases with one less owner.