Buy-and-sell Agreement
Definition of "Buy-and-sell agreement"
Approach used for sole proprietorships, partnerships, and close corporations in which the business interests of a deceased or disabled proprietor, partner, or shareholder are sold according to a predetermined formula to the remaining members) of the business. For example, a partnership has three principals. Upon the death of one, the two survivors have agreed to purchase, and the deceased partner's estate has agreed to sell, the interest of that partner according to a predetermined formula for valuing the partnership to the survivors. Funds for buying out the deceased partner's interest are usually provided by life insurance policies, with each partner purchasing a policy on the other partners. Each is the owner and beneficiary of the policies purchased on the other partners. When a sole proprietor dies, usually a key employee is the buyer/successor. The sole proprietorship, partnership, and close corporation under the entity plan can buy and own life insurance policies on the proprietor, partner, or shareholder and achieve the same result as when an individual buys and owns the policies.
Popular Insurance Terms
Form of insurance that insurance companies buy for their own protection, "a sharing of insurance." An insurer (the reinsured) reduces its possible maximum loss on either an individual risk ...
Same as term Compulsory Insurance: coverage required by the laws of a particular state. For example, many states stipulate minimum amounts of automobile liability insurance that must be ...
Provision in a policy that states the circumstances under which an insurer may elect not to renew the policy. ...
Smallest premium necessary to keep the life insurance policy in force regardless of the current mortality, interest, and expense experience of the insurance company. This type of premium is ...
Situation in which insurance benefits exceed the actual loss of an insured. Overinsurance can be a problem for the insurer because it may tempt the insured to make a false claim in order to ...
Type of premium plan under which the employer (if noncontributory plan) or the employer and employee (if contributory plan) make level annual premium payments to fund the future retirement ...
Amount of required capital that the insurance company must maintain based on the inherent risks in the insurer's operations. These risks include asset depreciation risk, credit receivables ...
Written document containing instructions on managing one's assets during one's lifetime. The document may be revoked (unless made irrevocable at creation), terminated, or amended at any ...
Independent insurance salesperson who represents particular insurers but may also function as a broker by searching the entire insurance market to place an applicant's coverage to maximize ...
Have a question or comment?
We're here to help.