Mark T. Donohue and Keith D. Greenfield, both in their early 30s, jointly own and operate Symphony Capital Management, a financial-planning business, inChestnut Hill, Mass. Since they urge their clients to set up buy-sell agreements to ensure orderly transitions when an owner in a partnership dies, it seemedonly natural to institute such a plan for themselves. But the cost of purchasing individual life insurance policies to fund their buy-sell agreement seemedprohibitive--$7,500 per year for the two, says Donohue.
Their solution was to buy an increasingly popular type of coverage known by the cheery name "first to die." In Donohue and Greenfield's case, thecoverage costs only $2,612 per year for a $500,000 death benefit. "A company buys one of these policies, which covers the lives of all owners, but the policypays only once, when the first person dies," explains Kenneth Brier, a lawyer with Powers & Hall, in Boston.
Here's the logic: The insurance payoff comes when extra funds are most needed, usually to buy the deceased partner's stock. The payment goes to thesurviving partner or the company. It's an excellent option if the surviving partner plans to leave the company to a spouse or sell the business and won't beneeding additional insurance funds for future buy-sell agreements.