When disability income insurance is used to fund buy-sell agreements:
- The premiums are not tax-deductible.
- The buyer receives benefits tax free and uses them to buy the business interest under the terms of the agreement.
- The agreement can provide for a lump sum purchase, an installment purchase, or a combination of both.
- Benefits received by the seller are non-taxable. However, the sale of the business interest may have tax implications. Consultation with the prospect's financial adviser is recommended.
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Businesses should consult with their tax and legal advisors when establishing a formal plan.
