Buy-sell arrangements for the death of a co-owner may be funded with life insurance. The mechanisms and details of buy-sell arrangements were discussed. The decision whether to use life insurance was modeled using the expected utility theorem. State dependent utility was used since a surviving partner may become more (or less) risk averse upon the death of a co-owner. Life insurance funding is preferred at relatively low amounts of risk aversion, especially if the surviving partner becomes more risk averse after the co-owner's death. A lower percentage of life insurance would be used if insurance premiums are significantly above actuarially fair premiums. Given currently available insurance rates, most closely held small businesses probably should fund their buy-sell arrangements with life insurance.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Cornell University, Department of Applied Economics and Management in its series Working Papers with number
14733.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: