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The loss of a co-owner as a result of either death or disability could impact your business in the following ways:

  • The existence of the business may be in jeopardy.
  • Credit facilities may be affected adversely.
  • Outsiders may obtain a controlling interest.
  • Remaining co-owners may be unable to afford the deceased’s interest or shares.
  • The business interest may be sold below fair market value.
  • Buy and Sell Insurance enables business continuity.

It works as follows:

  1. The co-owners enter into an agreement where they undertake to purchase the interest of their fellow co-owners should any of them die or become disabled.
  2. A co-owner takes out a policy with Botswana Life on the life of another co-owner and vice-versa. Each co-owner will consequently own a benefit on the life of the other and pay the premiums under the benefit of which they are owner.
  3. Policy benefit provides the cash to facilitate the purchase of an interest in the business, thus ensuring business continuity and the financial welfare of a deceased’s dependants.
  4. When more than one (1) co-owner is involved, the benefit on the life of each co-owner will be jointly owned by the other co-owners, proportionate to their interest in the business.

An example is as follows:

Company X has three (3) co-owners: A, B and C. The insurance is exercised in three (3) ways:

  • Co-owners A and B (the contracting parties) insure the life of co-owner C.
  • Co-owners A and C (the contracting parties) insure the life of co-owner B.
  • Co-owners B and C (the contracting parties) insure the life of co-owner A.

Benefits for the remaining co-owners are as follows:

  • No risk of new co-owners joining the business who might be unskilled or incompatible.
  • An inexpensive way of funding the purchase price.
  • The business can continue with minimal disruption.
  • Benefits for the disabled co-owner and heirs are:
  • An immediate cash payment, which can substitute the income lost as a result of the death or disability of a breadwinner.
  • A negotiated purchase price negotiated by the parties concerned ensuring that the co-owner or his/her dependants receive the full value of the business interest.