Important Questions to Ask About Buy/Sell Life Insurance Policies & Proposals

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Amount: Does the amount of life insurance provide adequate liquidity for the requirements of the buy/sell agreement based upon the current business valuation, and the projected business valuation over the next three to five years?

Ownership & Beneficiary: Are the ownership and beneficiary designations of the life insurance policies consistent with the provisions of the buy/sell agreement? Is this arrangement the most tax effective use of the life insurance? Who is responsible to ensure that policies have appropriate ownership and beneficiary designations? (i.e. attorney, CPA, insurance representative, client)

Projected Policy Duration: Is the life insurance likely to be in force and cost effective for the duration of the need written in the provisions of the buy/sell agreement, and the objectives of the business owners?

Cost: Are the life insurance policies cost effective for the current buy/sell arrangement needs, based upon the current insurability of the owners and the currently available life insurance products?

Excess Cash Value: Are the buy/sell life insurance policies building excess cash value that could be used in other ways in the business? (If so, there may be ways to remove excess cash value without adverse income tax consequences, without making potentially costly policy loans, and without impairing the long term performance of the life insurance policies.)