The agreement also defines how that interest will be purchased and by whom. Such an agreement creates a market for your business interest by facilitating a smooth transfer of ownership. Life Insurance One of the best alternatives for funding a Cross Purchase strategy is life insurance. Life insurance can provide financing to buy out a partner's interests exactly when needed. Cash values of a life insurance policy are similarly available in the event of a lifetime buy-out.
Life insurance is easy to administer and the proceeds are usually received income tax free.
Life insurance will also strengthen a business credit position while providing funding that uses discounted dollars, allowing the buyers to purchase the business for pennies on the dollar. Another alternative for funding a Cross Purchase strategy is a Disability Buy-Out Coverage policy. When one of the owners of a business is totally disabled, the policy can be used to determine the value of the disabled owner's share and when the buy-out will be executed. In an Entity Purchase Plan the business, rather than individual owners, purchases policies insuring the individual owners. The benefits of the policies will be used to secure the business in the event of an owner's death or disability.