Buy-Sell Insurance

Buy-sell insurance funds the purchase of a business owner's share when they exit due to death, disability, or critical illness. It is also called succession insurance or business succession insurance.

Multiple business partners or shareholders enter into a legally binding buy-sell agreement establishing terms, valuation method, and trigger events for ownership transfer.

Trigger events covered

The insurance can pay on:

• Death of an owner
• Total and permanent disability (TPD)
• Trauma / critical illness diagnosis
• Total and temporary disability in some policies

The three ownership structures

Policies are typically structured in one of three ways:

• Cross-ownership - each partner owns insurance on the others
• Self-ownership - each owner holds insurance on themselves, with the business or partners holding an option to purchase
• Company ownership - the business owns insurance on all owners

What the insurance achieves

When a trigger event occurs, the insurance provides immediate funds so the remaining owners can purchase the departing owner's share at a pre-agreed price. The outcomes are:

• Family receives fair value for the share
• Surviving owners maintain control without external financing
• No forced sale scenarios
• Business protected from unwanted new partners
• Continuity for employees and clients
• Financial certainty for all parties

Tax considerations

Australian taxation of buy-sell arrangements is complex, with different consequences depending on structure. Professional tax and legal advice is essential when establishing the agreement.

Where it matters most

Buy-sell insurance is critical for:

• Professional partnerships including medical practices, law firms, and accounting firms
• Family businesses with multiple siblings involved
• Any multi-owner business where continuity matters

Regular policy reviews are necessary to ensure insured amounts match current business valuations.