What Is a Life Insurance Cross Purchase Agreement?

A life insurance cross purchase agreement is something that is commonly found in the business world today. Here are the basics of the life insurance cross purchase agreement.

Cross Purchase Agreement

A cross purchase agreement is an agreement that is utilized by business partners that are going to become owners of a company. Each owner will own a certain percentage of the company. With this type of agreement, if one of the shareholders of the company passes away, the remaining shareholders agreed to purchase that persons stake in the company. The money from the sale will go to the family members of the deceased individual. The purchase price of the holdings will be decided in advance.

Life Insurance

Many times, the business partners will purchase a life insurance policy on every member of the group. They will name themselves as beneficiaries so that they can collect the money for the purchase price whenever one of the members dies. Once the person dies, the insurance company is going to provide the group with the money that is necessary to purchase the remaining shares and they will be able to immediately do so. That money from the life insurance policy will then go to the family members.