Insurance policies may be taken out by the shareholders or by the company in order to meet the requirements of a purchase and sale agreement in the event of a shareholder’s death and thereby purchase that shareholder’s shares and pay the purchase price or a substantial down payment on that price; in such a case, shareholders may be required to undergo medical examinations required by an insurance company. Accordingly, the shareholders may take out and maintain in force one or more insurance policies, each covering the lives of the other shareholders, and each surviving shareholder shall have the right to redeem from the estate of the deceased shareholder the insurance policy or policies covering his or her own life; Furthermore, insurance policies may be taken out and maintained by the corporation on the lives of each of the shareholders, provided they are eligible for coverage.
If the proceeds of the matured insurance policy exceed the total value of the amount payable to the heirs or the estate of the deceased shareholder, the surplus from such insurance may remain the property of the corporation or the beneficiaries of such proceeds, as the case may be.
In the event of death and generally speaking, if the corporation has taken out a life insurance policy on the shareholders for the benefit of the corporation, the surviving shareholders may be required to ensure that the proceeds of the policy are distributed to them by the corporation as soon as possible after the date of death and in the least costly manner possible, and they may subsequently need to ensure that the purchase of the deceased’s shares is made first and up to an amount equal to the capital dividend account of the corporation created by the receipt of the life insurance proceeds from the deceased shareholder.
However, a shareholder may not assign, transfer, or surrender any of the insurance policies issued and described above, nor may the shareholder borrow against the policy’s reserve without obtaining the prior consent of the company or of any insured person covered by such policy, as the case may be.