Owner Operated Businesses
Companies where one or two people bring in the work, run the jobs or hold the key relationships.
Key Person and Buy Sell Life Insurance in San Antonio
Key person coverage, buy sell funding and the life insurance lenders often ask for on SBA and commercial loans, for San Antonio business owners and partners.
Who It's For
Companies with Several Owners
Partners and shareholders who want a plan for buying out an owner's share and paying the family fairly.
SBA and Commercial Borrowers
Owners whose lender asks for life insurance and a collateral assignment as part of the loan.
Real Estate Partners
Investors who hold flips or rentals together in an LLC or partnership and want a plan if a partner dies.
What It Covers
Key Person Coverage
The business owns the policy on an owner or key employee and receives the benefit. It can cover lost revenue, the cost of a replacement or paying down debt.
Cross Purchase Buy Sell
Each owner owns a policy on the other owners. When one dies, the others use the benefit to buy that owner's share from the family.
Entity Redemption Buy Sell
The company owns a policy on each owner and uses the benefit to buy back the share of an owner who dies. It takes fewer policies when there are several owners.
Loan Collateral Coverage
A policy pledged to a lender through a collateral assignment. The lender is paid what it is owed first, and the rest goes to your beneficiaries.
Real Estate Partner Buyouts
Coverage sized to a partner's share of the properties, so the surviving partners can buy that share without selling a property on a deadline.
SBA Loans and Buy Sell Agreements
SBA rules generally require owners of 20 percent or more to back the loan personally, so lenders pay attention to what happens if an owner dies. Many SBA lenders require life insurance on an owner, especially when the business depends on that person and the loan is not fully secured by collateral. The policy is pledged with a collateral assignment naming the lender, so ask your lender for its requirement in writing, including the amount and term.
A buy sell agreement sets who buys an owner's share, at what price and how it gets paid for. In an LLC those terms are often written into the company agreement, and in a corporation, a shareholder agreement. Life insurance funds the promise and the agreement controls it, so the policy owners and beneficiaries need to match what the agreement says.
Cross purchase and entity redemption plans are taxed and valued differently, and the choice can affect each owner's estate. Work through the structure with your attorney and CPA before the policies are issued, and we will set up ownership and beneficiaries to match their plan. As an independent agency, we can request quotes from more than one insurance company for each owner.
Common Questions
What Is Key Person Life Insurance?
A policy the business owns on someone the business depends on, such as an owner, a top producer or a lead estimator. The business is the beneficiary and can use the money to cover lost income, hire help or pay debt.
Does an SBA Loan Require Life Insurance?
It depends on the loan, the collateral and how much the business depends on one person. Many SBA lenders require life insurance on an owner with a collateral assignment to the lender, so ask your lender for its requirement in writing.
What Is the Difference Between Cross Purchase and Entity Redemption?
In a cross purchase plan, the owners insure each other and buy the shares themselves. In an entity redemption plan, the company owns the policies and buys the shares back, and your attorney and CPA can explain how each one is taxed.
How Much Buy Sell Coverage Do We Need?
Start with the value your agreement sets for each owner's share. Many agreements call for an updated valuation from time to time, and coverage should be reviewed when that value changes.
Can I Use a Policy I Already Have for My Loan?
Often, if the amount and term meet the lender's requirement and the insurance company accepts a collateral assignment. Your lender decides whether an existing policy qualifies.
Related Coverage
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