How to Get Buy-Sell Life Insurance with a Marijuana Business

It’s dangerous to skip making a buy-sell agreement in place when you have two or more business owners. Buy-sell life insurance can help fund an extra layer of protection for your business.

Why is this important?

Buy-sell life insurance for both or all owners will ensure the successful transfer of ownership if one of the partners unexpectedly dies. There is also buy-sell disability insurance, but we will cover than in another article.

You put your business’s assets at risk by not having a buy-sell life insurance agreement.

Important Life Insurance Tip

While most companies reject business owners in the marijuana industry, some are slowly shifting towards more reasonable perspectives.

Most traditional life insurance companies will automatically decline marijuana business owners.

There are only a few “marijuana friendly life insurance companies” which will consider an application for a buy-sell life insurance policy for a marijuana business owner.

The reason is the government still considers marijuana illegal at the federal level. Although many life insurers will sell policies to individuals taking medical marijuana or recreational marijuana, the same approach does not apply to those who work in the marijuana industry or owners of marijuana businesses.

We created Marcan Insurance to serve the needs of marijuana business owners, recreational smokers, and medical patients alike. Our independent agents can save you both time and money by finding the best and most affordable buy-sell life insurance agreement for your cannabis enterprise.

If you have any questions, call us at (888) 987-8447. All calls are confidential and there is never any obligation to buy.

What Happens Without a Buy-sell Life Insurance Agreement?

Disputes over asset ownership are more common than most people expect. Other partners, spouses, or other family members might argue over the assets without a buy-sell in place.

This unresolved dispute of control of the disputed assets could result in a very lengthy and expensive legal mess. Ultimately, the legal conflict could result in the ruin of the company.

Case Study of How Marcan Insurance Can Help

We recently had a case where a marijuana business owner was seeking information on a buy-sell life insurance agreement for his company. The owner was 56 years of age and was diagnosed with cancer several years previously. With treatment, he was able to recover and continue with a normal life.

Because of his cancer, most life insurance companies would not even consider his application. To add insult to injury, most life insurance companies would not give him a policy with a cancer exclusion because he owned a medical marijuana dispensary. 

Happily, we were successful in finding a $1.5 million Buy-Sell Asset Protection policy with a cancer exclusion.

How Does a Marijuana Business Owner Buy Sell Life Insurance Agreement Work?

Buy-sell life insurance agreements specify the seamless transition of ownership of the proportional amount of assets.

A buy-sell life insurance agreement is legally all of the following:

• Contractual
• Binding
• Life Insured Protected

A buy-sell life insurance agreement is the best way to ensure funds are immediately available. That way you won’t need to wait for the transfer of the deceased owner’s assets.

A properly designed life insured buy-sell agreement will also outline the following components of how the process will work including:

• Clearly state the obligation of all interested parties
• Outlines the purpose of the agreement
• Provides a formula or purpose for the value and purchase/selling price of the assets controlled by each owner
• Specifies how to fund the agreement such as through a buy/sell life insurance policy. (The agreement must specify the type of life insurance as well as how to pay the policy.)
• Any transfer restrictions

Types of Marijuana Business Owner Buy/Sell Agreements

There are generally 3 possible approaches to setting up a marijuana business owner buy sell life insurance including:

Cross Purchase Agreement – This is the most commonly used approach where 2 or more owners agree that when the ownership is to be transferred to the surviving owners. The business interest will be purchased as outlined by the terms in the agreement.

Entity Purchase Agreement – This approach is better utilized by larger business enterprises where the business entity itself will purchase the ownership of each party. (Also known as a stock redemption agreement)

Hybrid Agreement – Ownership can be offered to the business entity first. If the business entity is uninterested or unable to purchase the ownership, it can then be offered to the surviving partners.

Most marijuana business owners will be best served with a Cross Purchase Buy-sell agreement funded by a term life insurance policy. However, you need to confirm with an attorney which approach is best for your situation. We will help you find the best rates on life insurance, but we do not provide legal or tax advice.

Benefits and Features of a Buy/Sell Life Insurance Agreement

When selecting a marijuana business owner buy sell life insurance policy, you have 2 types of life insurance to choose from.

Term Life Insurance – Term life insurance provides death benefits only. It is sold in periods of time such as 10, 15, 20, 25 or 30 years. Term is also the most affordable life insurance available.

Permanent Life Insurance – Permanent life insurance is for the owner’s entire life time. It not only provides death benefits, but also a cash value accumulation feature. This grows through the lifetime of the policy. These policies, which include Whole Life and Universal Life, are considerably more expensive.

There are several other benefits and features when you purchase a marijuana business owner buy-sell life insurance policy including:

• All life insurance proceeds payable are “income tax free” regardless of who owns the policy, but subject to certain conditions.
• For cross purchase buy-sell agreements, the cash value of any policies the deceased has on the surviving partners is considered as part of the deceased’s estate.
• Gift taxes are not applicable when the provisions of the buy-sell agreement are carried out.

What Does the IRS Require to Determine the Value of the Business Assets?

The IRS requires your buy-sell life insurance agreement to meet the following criteria:

• The buy-sell agreement must be a business agreement which is bona fide
• The buy-sell agreement must transfer property to the family of the deceased at full value

How Does a Life Insurance Company Value a Marijuana Business?

When buying a marijuana business buy-sell life insurance policy, the life insurance company will require the following information to establish a proper value of your enterprise from one of the following:

• Book Value – This includes the total of all the company assets minus liabilities or debt
• Market Value – This is the purchase price a purchaser would be willing to pay for your business. It is generally higher than the book value.
• Capitalization of Earnings – The value is determined by average net income or revenue of the business.

Each life insurance company requires its own paperwork for your enterprise. They do that in order to establish what they consider a proper value amount for the life insurance policy. For example, Company A might use the capitalization of earning or book value. While Company B would accept the market value and offer you a higher face amount.

Sample Marijuana Buy-Sell Agreement Policy

Like other legal documents, buy-sell agreements are there to protect all the money and time you’ve put into this business. Funding them through insurance means the surviving partner doesn’t have to come up with the cash.

Below is a sample buy-sell agreement term life insurance (no medical exam) through one of our favorite marijuana friendly life insurance carriers, Petersen’s International Underwriters.

This buy-sell life insurance agreement policy offers the following main benefits including:

• Term of Insurance is from 90 days to 12 months
• Renewals are available if you required extended coverage
• No medical exam or medical records

You will need to meet the criteria below:

• Copy of the buy-sell agreement and company financials are required at time of underwriting
• Benefit amount will not exceed 100% of ownership value

This policy works best for people in the following circumstances:

• You need coverage within 24 – 48 hours
• Insurable interest require confidentiality
• Completing a medical exam is an issue
• Health concerns
• Insured lives outside of the United States
• Insured must travel to war zones
• Issue limits are problematic
• Divorce decrees

All you have to do is answer 8 simple health questions on the application. The second step is to provide financial insurability information including:

• Ownership percentage of the insured person
• Value of the ownership
• Provide 2 years corporate/company tax returns (all schedules)

This is just one sample of the types of marijuana business owner buy-sell life insurance that Marcan Insurance can provide. We also have many other options that can suit the needs of your business.

Why Marijuana Business Owners Should Use Marcan Insurance

Marcan Insurance is unique because we specialize in providing life insurance solutions to marijuana business owners. Because we are an independent life insurance agency, we work exclusively for you and not the life insurance companies.

All our agents keep up to date on which life insurance carriers are the most marijuana friendly. We have access to more than 70 top-rated life insurance companies. We can save you both time and money when it comes to finding the life insurance solution your business needs.

Marcan Insurance can find you a life insurance solution for any of the following situations including:

• Marijuana Business Owner Buy Sell Life Insurance
• Marijuana Business Owner Key Person Life Insurance
• Marijuana Business Owner Disability Insurance
• Marijuana Business Owner Life Insurance for Loan
• Marijuana Business Owner Tax-Free Retirement
• Affordable Personal Life Insurance Solutions with Cannabis Use

This rapid approval policy is just one of the several Petersen’s and other carriers offer. If you need help finding buy-sell life insurance as a cannabis business owner, then call us right now at (888) 987-8447.