Buy-sell life insurance is coverage used to fund a legally binding buy-sell agreement between business co-owners. If an owner dies, the policy’s death benefit provides cash so the surviving owners (or the company) can purchase the deceased owner’s shares at a pre-agreed price.

The two most common are cross-purchase (owners buy policies on each other and personally purchase the deceased owner’s interest) and entity redemption (the company owns the policies and redeems the deceased owner’s shares). Hybrid and wait-and-see designs combine elements of both.

Coverage typically equals each owner’s equity value based on the agreement’s valuation method (fixed price, formula, or appraisal). Many firms add a buffer for taxes, debts, and transition costs and schedule periodic reviews as the company grows.

Level term is popular for affordability over a defined horizon (e.g., 10–30 years). Permanent policies (e.g., whole life, IUL, GUL) can be appropriate for lifelong protection, cash value accumulation, or when the exit timing is uncertain.

In cross-purchase plans, each owner typically owns a policy on the other owner(s) and is the beneficiary. In entity redemption plans, the business owns the policies and is the beneficiary, then redeems the decedent’s shares using proceeds.

Agreements often set a valuation formula (e.g., multiple of EBITDA, book value plus adjustments) or require an independent appraisal at trigger events. Include an update schedule (e.g., annually) so coverage keeps pace with the company.

Common triggers include disability, retirement, divorce, termination, or a voluntary sale. Disability buyout coverage (separate from life insurance) can fund purchases if an owner becomes totally disabled per the contract definition.

For healthy applicants and moderate face amounts, accelerated/no-exam programs can approve in days. Traditional underwriting with exams and medical records typically takes 2–6 weeks depending on age, amount, and health history.

Update the agreement and policy amounts when owners join/exit or valuations change. Many policies offer term conversion, increase options, or additional policies can be layered to close gaps as the business grows.

In general, life insurance death benefits are received income-tax free; premiums are usually not deductible. Entity vs. cross-purchase structures may have different basis and ownership consequences. Consult your tax advisor for specifics.

No—each insured requires their own policy. With many owners, cross-purchase can mean numerous policies; entity redemption simplifies ownership by having the company own one policy per owner.

Key person insurance indemnifies the company for the economic loss of a key employee/owner; it doesn’t transfer ownership. Buy-sell insurance specifically funds the purchase of the deceased (or disabled) owner’s shares under the agreement.

You’ll need a written buy-sell agreement prepared by legal counsel, board/owner resolutions as applicable, properly owned life insurance policies, and beneficiary/ownership records aligned to the agreement. Keep copies of valuations and periodic updates.

Often yes, by changing ownership/beneficiaries or using a new policy plus a collateral assignment or endorsement as your counsel recommends. Ensure any changes do not trigger adverse tax consequences or violate transfer-for-value rules.