Jennifer and Sandra have decided to start their own business. They will leave their 15 years careers working for a large advertising firm to start they own advertising firm. They will both be investing 150,000 to start the company. They have secured a line of credit for 100,0000 from the Business Development Bank of Canada which is a federal Crown corporation wholly owned by the Government of Canada. Its mandate is to help create and develop Canadian businesses through financing, growth and transition capital, venture capital and advisory services, with a focus on small and medium-sized enterprises is the only bank devoted exclusively to Canadian entrepreneurs.

With their working capital in place, Jennifer and Sandra agree to complete a buy-sell agreement to protect their share of the business. They both had independent legal advisors to make sure that the agreement represent both their interest equally. The lawyers recommended that they fund the buy-sell agreement with life insurance.

When they met the insurance broker, they made the following recommendation.

To fund the buy-sell agreement, the insurance broker recommended the purchase of a 10-year term policy for 250,000 with the option to convert to 20-year term with no medical plus the option to convert it to permanent coverage. Jennifer and Sandra were both 42 year old, so the cost for the insurance was 344.19 annually. This policy would protect the partnership if either one were to die. The business would own and paid for the insurance, and the business would be the primary beneficiary. If one the owners died, the 150,000 of the death benefit is used to buy out the deceased partner share of the business from the their estate. The balance of 100,000 would be used to pay off the outstanding line of credit and secure the financial health of the business.

If you are starting a business with a partner and you want to protect your investment, then one of the first things you need to do is to sign a shareholder buy-sell agreement prepared by a lawyer and fund that agreement with life insurance. It will be the best investment to protect yourself and your business partner from a financial loss due the death of a shareholder.