Buy-Sell Agreement
A binding contract that pre-arranges what happens to a business owner's share at death or exit — with life insurance providing the money to make it happen.
A buy-sell agreement is a contract among business co-owners (or between owners and the company) fixing in advance who can buy an ownership interest, at what price or formula, and on what triggering events — death, disability, divorce, bankruptcy, retirement, or a falling-out. Without one, a deceased partner's shares pass through their estate to a spouse or children — and the survivors are suddenly in business with grieving co-owners who may want cash, control, or neither.
The agreement is the rules; life insurance is the funding that makes the rules executable. At an owner's death, the Death Benefit delivers exactly the purchase price, in cash, within weeks, income-tax-free — no scrambling for bank loans against a company that just lost a key leader, no decade-long installment note the widow must trust, no fire-sale of assets. The two dominant structures: a cross-purchase (owners insure each other, buy the shares directly, and receive a stepped-up basis) and entity redemption (the company owns one policy per owner and redeems the shares — simpler with many owners, but mind the corporate AMT and the *Connelly* valuation issue your attorney will know about). Hybrid "wait and see" designs keep both doors open.
Two implementation details sink more buy-sells than anything else. Stale valuations: an agreement pegging the company at its value from eight years ago guarantees a fight — use a formula or scheduled appraisals, and update insurance amounts to match. And disability: statistically likelier than death during working years, routinely triggering the agreement with no funding attached — disability buyout insurance exists for exactly this.
Using permanent policies rather than term adds optionality: Cash Value grows as a corporate asset, can help fund a *lifetime* buyout at retirement, and folds into corporate Infinite Banking designs where the business banks on itself. Pair the buy-sell with Key Person Insurance — one protects ownership continuity, the other operating survival — and the business has both flanks covered.
Related terms
Key Person Insurance
Life insurance a business owns on the people it cannot afford to lose — replacing the revenue, relationships, and leadership a death would take with it.
Read moreDeath Benefit
The money a life insurance policy pays to your beneficiaries when you die — generally income-tax-free.
Read moreEstate Planning
Arranging, during life, who gets what, when, and how at your death or incapacity — with documents and structures that keep courts out and intentions in.
Read moreCash Value
The living, liquid equity inside a permanent life insurance policy — money you can borrow against, withdraw, or surrender while you are alive.
Read moreSee how buy-sell agreement fits your situation.
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