Do you want to partner with your partner’s partner?

Most people who go into business together do it because they work well together. Maybe it started with a great idea, or exceptional service, and it evolved into a strong partnership, with a commitment not dissimilar to a marriage.

But what happens if something happens to one of you? No one wants to think about their business partner or themselves being unable to work or worse. Putting your head in the sand isn’t going to help solve this problem – it will just leave the business and families to try and pick up the pieces.

Enter buy-sell insurance

Buy-sell insurance is effectively part of the succession strategy for the business (and yes, we automatically think of the TV show when we mention ‘succession’, too). It is designed for businesses with more than one shareholder and protects both parties’ interests should a shareholder die or become permanently disabled.

An example:

  • Jim and Lucas go into business together
  • Their shareholding is 50% each
  • The business is valued at $1m
  • Jim dies (tragically but not suspiciously), and the buy-sell insurance pays out Jim’s partner $500,000
  • Jim’s shares then go to Lucas (if that’s what the shareholder agreement stipulates) and the business continues under Lucas’ direction.


It is important to ensure that the buy sell insurance is legally documented.  The legal agreement will stipulate that when Jim’s insurance pays his partner, the shares are transferred to Lucas.  Without this agreement Jim may receive the insurance pay out and his partner or estate also retains the shares.  This would leave Lucas in business with Jim’s partner.

The idea behind succession planning and buy-sell insurance is to provide certainty. It can be discussed and agreed before anything happens when everyone is calm and clearheaded and not emotional or under duress.

An important note

One critical thing with buy-sell insurance (and with most insurances, really) is that your information needs to be up to date. A good insurance adviser will check in with you annually to find out if anything material has changed that might impact your insurance or adjust the value of your insurance. For example, if your business has tripled in size in a year, the value of your business will also have changed and thus require a different sum insured or you could still end up in a dispute.

It is also important that your insurance adviser works closely with your other professional advisers when facilitating this type of insurance.  Having the appropriate business valuation, legal documentation and structural advice is imperative to sound succession planning and the successful implementation of buy sell insurance.

Find out more

If the idea of partnering up with your business partner’s partner doesn’t fill your heart with joy, make sure you’ve got the right cover in place. And even if it does, get your plans in place to make sure everyone’s on the same page!

Orbital Life takes a strategic approach to your insurance solutions. We can help advise you of the right questions to ask and propose a rigorous insurance solution to put in place.  If you’d like to have a free chat about your situation, contact us here.

Please remember that the information above is provided as general advice only. The contents have been prepared without taking into account your personal objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.

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