What Does Cross Purchase Plan Mean?
A cross purchase plan is a legally binding agreement that allows partners in a business to buy another partner’s shares of the business in the event of that partner’s death, incapacitation, or retirement. It details the division and purchase of shares and is essential to business continuation planning. In the context of insurance, partners often purchase the deceased or leaving partner’s shares using the proceeds from a life insurance policy.
Insuranceopedia Explains Cross Purchase Plan
A cross purchase plan allows the opportunity for shares to become unexpectedly up for grabs, such as in the event of a partner’s death; therefore, partners may purchase life insurance policies for each other and name themselves as the beneficiary. Thus, if upon the death of one of the partner, the other can use the proceeds from the policy to buy the deceased’s original share. The price may be listed as a dollar amount or provided as a formula in the cross purchase plan.