Partnership Buy-Sell Agreement Insurance
Over 100 Annuity Carriers to Quote From. Here are a few of them!
Protect Your Partnership With a Funded Buy-Sell
A properly structured life insurance plan ensures your buy-sell agreement is funded on day one—so your business, your partners, and your family are protected.
If you own a business with one or more partners, securing a buy-sell agreement backed by
competitive term life insurance
is one of the smartest moves you can make. At Diversified Insurance Brokers, we help business owners protect their companies, their families, and their futures. With access to 100+ top-rated carriers, we’ll guide you to the right policy that supports your specific agreement structure. Get a personalized quote today and see how easy it is to safeguard your business legacy.
Instant Life Insurance Quote
What Is a Buy-Sell Agreement Funded by Life Insurance?
A buy-sell agreement is a legally binding contract that dictates what happens to an owner’s business interest after certain trigger events (death, disability, retirement, etc.). When the agreement is funded with life insurance, the policy’s death benefit provides immediate liquidity to buy out the deceased owner’s shares—keeping control with the surviving partners and delivering fair value to the decedent’s heirs. It’s a proven way to maintain continuity, avoid disputes, and stabilize the enterprise.
Cross-Purchase vs. Entity-Purchase Structures
Choosing a structure for your buy-sell life insurance
Cross-purchase: Each owner buys a policy on the other owner(s). If a partner passes, the surviving owner uses the death benefit to purchase the decedent’s shares. Pros: potential basis step-up for the buyer; aligns ownership and funding. Cons: can require many policies when there are multiple owners.
Entity-purchase (stock redemption): The business owns and is beneficiary of policies on each owner. Upon death, the company redeems the decedent’s shares. Pros: fewer total policies; simpler administration for multi-owner firms. Cons: no basis step-up at the owner level; may affect corporate valuation dynamics.
Some firms use hybrid or trust-owned structures to balance administration, taxes, and control. We’ll help you coordinate with counsel to align the insurance with your agreement language.
How Much Coverage Do You Need?
Valuation methods for buy-sell life insurance
- Fixed price or formula-based valuation: A stated value updated annually (or tied to EBITDA, revenue multiples, or book value).
- Third-party appraisal: Independent valuation at policy inception and on a set schedule thereafter.
- Blended approaches: A baseline formula plus appraisal under certain conditions (e.g., material change).
Coverage should reflect the agreed valuation method and be reviewed regularly. We commonly pair comprehensive life insurance planning with an annual corporate review to keep values current.
Term vs. Permanent for Buy-Sell Funding
Matching policy type to your partnership time horizon
Term life: Lowest cost for a defined period (10–30 years). Great fit for firms expecting liquidity events, succession timelines, or partner retirements within the term. You can compare options using our
best term life insurance guide.
Permanent life: Provides lifetime coverage with potential cash value. Useful when partners want coverage well beyond near-term horizons or prefer policy values that can be repurposed (e.g., equalizing capital accounts).
Many partnerships blend policy types or use layered terms to balance budget, duration, and flexibility.
Key Tax and Ownership Considerations
Coordinating beneficiaries, premium payer, and entity type
- Ownership & beneficiary alignment: Ensure policy owner, premium payer, and beneficiary designation match the agreement (cross-purchase vs. entity-purchase).
- Income taxation: Death benefits are generally received income-tax free when structured properly.
- Basis & valuation: Cross-purchase can increase the surviving owner’s stock basis; entity-purchase typically does not.
- Agreement consistency: The insurance details (face amounts, insureds, owners) should mirror the executed agreement and any amendments.
We’ll coordinate with your attorney and CPA so the insurance mechanics align with your agreement and entity structure.
Steps to Implement and Maintain
From design to annual reviews
- Confirm agreement language: Draft or update your buy-sell with counsel; choose valuation and structure.
- Design the funding plan: Determine face amounts, term length(s), or permanent options; set ownership/beneficiary details.
- Underwriting and placement: We pre-screen with 100+ carriers to pursue best pricing and speed.
- Policy delivery and tracking: Centralize policy info, premium schedules, and contact points.
- Annual review: Re-evaluate coverage against changes in valuation, ownership, or debt.
Common Mistakes to Avoid
- Underinsuring the buyout: Face amounts don’t match current valuation or debt.
- Wrong owner/beneficiary: Policy setup conflicts with the agreement structure.
- Letting policies lapse: Missed premiums, no backup funding plan.
- Out-of-date agreement: New partners, mergers, or capital changes not reflected.
Case Example
Two 45-year-old partners valued their firm at $4M. We designed a cross-purchase arrangement using 20-year term policies—each owner held a $2M policy on the other. The agreement specified an annual formula update. Three years later, valuation increased to $5M; we added supplemental term layers to maintain funding at the new value while keeping premiums efficient.
Helpful resources
Get Your Buy-Sell Funding Plan
We’ll coordinate policy design, underwriting, and agreement alignment—so your business is protected.
FAQs: Buy-Sell Agreement Life Insurance
Is term or permanent life insurance better for buy-sell funding?
Term is often the most cost-efficient for known horizons (10–30 years). Permanent can fit longer or open-ended timelines, or when owners want potential cash value. Many partnerships blend layers to match budget and duration.
How do we decide the right amount of coverage?
Tie face amounts to your agreement’s valuation method (fixed value, formula, or appraisal). Review annually and adjust for growth, debt, or ownership changes.
Who should own and be the beneficiary of the policies?
In cross-purchase, each owner typically owns a policy on the other and is beneficiary. In entity-purchase, the business owns and is beneficiary. Align the structure with your agreement and entity type.
What happens if our valuation increases?
Update face amounts or add supplemental coverage to keep funding aligned with current value. We can layer additional term policies to maintain efficiency.
Can we start with term and switch later?
Yes, many owners begin with term and later convert a portion (where available) or add permanent coverage as needs evolve. We’ll review carrier conversion options and timing.
Prefer to talk? Call 800-533-5969.
