West Virginia State Life Insurance Practice Exam

What is a potential benefit of a Buy-Sell Agreement funded by life insurance?

1. It allows for the immediate transfer of business ownership

2. It guarantees profitability regardless of market conditions

3. It ensures a steady income stream for the surviving partners

4. It eliminates the need for a board of directors

The correct answer is: It allows for the immediate transfer of business ownership

A Buy-Sell Agreement funded by life insurance is advantageous because it allows for the immediate transfer of business ownership upon the death, disability, or departure of an owner. In such situations, the surviving partners or shareholders can utilize the proceeds from the life insurance policy to purchase the deceased or departing owner's share of the business. This ensures that the business can continue to operate smoothly without disruption, preserving its value and stability. By having this mechanism in place, the surviving owners avoid potential disputes among heirs or other stakeholders regarding the ownership transition, and they can maintain control over the business. This immediate funding is crucial, as it provides liquidity that might not otherwise be available, allowing for a seamless transition of ownership without the need for extended negotiations or financing arrangements.