Note: This article is written in collaboration with Synchronize Insurance Services, powered by Lockton Affinity. In 2022, Lockton Affinity formed Synchronize, combining the specialized expertise of Lockton Affinity, SBG Inc., Blueprint Insurance Services and Freedom Partners to provide one, all-encompassing business solution for clients in the financial professionals industry. Synchronize leads the industry in its specialty, making it more efficient, affordable and accessible to do business.
Buy-Sell Insurance is an important tool for law firms to ensure smooth ownership transitions and protect the firm’s value when a partner departs due to a death, disability or another reason. This type of policy helps firms look beyond the day-to-day tasks of managing cases and clients and protect the future stability and longevity of the business.
What Is Buy-Sell Insurance?
Buy-Sell Insurance is typically tied to a buy-sell agreement, a legal contract that outlines what happens to a partner’s ownership interest in the firm if they die, become disabled or leave the firm.
This type of insurance policy funds the purchase of the departing partner’s share, ensuring a smooth transition of ownership.
Why Law Firms Need Buy-Sell Insurance
There are several reasons law firms find Buy-Sell Insurance beneficial:
- Seamless Ownership Transitions: Without a funded buy-sell agreement, the firm or remaining partners may struggle to buy out a departing partner’s share, leading to financial strain or disputes.
- Protection of Firm Value: Buy-Sell Insurance ensures the firm remains financially stable by avoiding the need to liquidate assets or take on debt to fund the buyout.
- Avoiding Unwanted Partners: It prevents a deceased or disabled partner’s heirs from becoming unintended owners, which could disrupt firm operations or decision-making.
For instance, if a partner with a 25% stake in the firm becomes disabled or passes away, their share might pass to their spouse or heirs, who either may not be attorneys or may not be aligned with the firm’s goals. Buy-Sell Insurance provides the funds for the remaining partners to purchase the share, keeping control within the firm.
How This Type of Policy Benefits Law Firms
Buy-Sell Insurance provides three key benefits to law firms:
- Risk Mitigation: Buy-Sell Insurance reduces the financial and operational risks associated with the loss or disability of a critical individual.
- Firm Stability: It provides the resources needed to maintain operations, retain clients, and avoid internal conflicts.
- Future Planning: This type of policy demonstrates a commitment to the firm’s long-term success, which can attract top talent and reassure stakeholders.
Practical Steps for Law Firms
For law firms interested in the benefits this type of policy provides, getting started is easy and begins with three simple steps:
- Review Partnership Agreements: Ensure your buy-sell agreement is up to date and funded with an appropriate insurance policy.
- Consult an Insurance Professional: Work with an advisor specializing in law firms to tailor policies, including Buy-Sell coverage, to your specific needs.
- Regularly Reassess Coverage: As your firm grows or changes, update your policies to reflect new partners, revenue streams or key personnel.
Conclusion
Buy-Sell Insurance is not just an optional safeguard — It’s an essential tool for protecting your law firm’s financial health and ensuring its resilience in the face of unexpected challenges. By investing in this type of policy, you can secure your firm’s future, maintain client trust, and provide peace of mind for partners and employees alike.
Explore how Buy-Sell Insurance can be customized to suit your firm’s unique needs today. Contact your NYC Bar Insurance specialist or call (844) 307-5960 to get started.