What insurance arrangement is best for business partners to ensure fair value for a deceased partner's share?

The arrangement that is best for business partners to ensure fair value for a deceased partner's share is a buy-sell agreement. This type of agreement establishes an understanding between business partners about how to handle the ownership of a business when one partner passes away. Typically, it involves a life insurance policy taken out on each partner, where the business or surviving partners are the beneficiaries. In the event of a partner's death, the insurance proceeds can be used to buy the deceased partner's share at a pre-determined value, ensuring that the remaining partners can continue the business without financial hardship.

The importance of a buy-sell agreement lies in its ability to provide clarity and stability for the business during a time of loss. It not only protects the interests of the partners but also serves the estate of the deceased partner, allowing for a fair valuation and avoiding potential disputes among heirs or co-owners. This kind of arrangement ensures that the business can operate smoothly without the financial strain that could arise from unexpected loss of a partner or ambiguity regarding ownership transition.

In contrast, joint life insurance primarily pays out upon the death of one partner, which may not provide the best mechanism for buyouts between partners. Term insurance policies have a duration and may not be guaranteed to be in