Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insur...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years

UPDATED: Jul 8, 2021

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The Brief

  • Make sure your business stays in the hands of those you want when you depart, with a buy-sell agreement life insurance policy
  • A variety of policy structures are available, so you can fine-tune them to meet your specific needs
  • Meeting with a lawyer and discussing the circumstances of your business and what your eventual plans are for its growth and development will ensure you get the best policy possible

What insurance would you want to use to ensure company shares stay within the company in the event of disability, death, or sudden departure? You’d want buy-sell agreement life insurance for your business and business partners.

This type of agreement is also known as a buyout agreement, a business will, or a business prenup.

As with any type of business-specific insurance, there are tax implications and differently structured plans, so you can choose the one that best fits your company’s needs.

Find an insurance company in your area to start comparing buy-sell agreement life insurance rates today. Enter your ZIP code into our free comparison tool below.

What is a buy-sell agreement life insurance policy?

A buy-sell agreement is a contract between two or more business partners indicating what would happen if either partner leaves the company via sudden departure, death, or disability.

Typically, the buy and sell contract would stipulate that available shares be sold to the remaining business partners.

Buy-sell agreement life insurance lists the business as the life insurance beneficiary, so it receives a death benefit to buy the shares or interest of a partner or owner when they die.

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How are buy-sell agreements structured?

There are four ways life insurance buy-sell agreements are structured. These are:

  • Cross-Purchase Plan – This is where the surviving owner or owners agree to buy the interests of a deceased or selling owner.
  • Entity Redemption Plan – This is where the business entity purchases the shares of the whole business.
  • One Way Buy-Sell – This is where the company is typically owned by a sole proprietor, and this person wants their child, spouse/partner, or chosen key employee to obtain their shares in the event of their departure.
  • Wait and See Buy-Sell – This is where the business has the first chance to buy the departing owner’s shareholding. If the business doesn’t take the option to buy those shares, the remaining partners then have the option available to purchase them.

Each structure has its advantages and disadvantages, which you should research fully before committing.

Should I buy buy-sell agreement life insurance?

If you are considering buying affordable buy-sell agreement life insurance, you may have already thought about your other options.

In truth, the alternative to insurance through a buy-and-sell arrangement is less than appealing for most.

Your options are to borrow from a commercial bank if you’d like to purchase the shares of the departed. If the bank did approve the loan, the repayment terms could make it unaffordable from a cash-flow point of view.

This is why buy-sell agreement insurance would be the more affordable solution for many. However, there are also buy-sell agreement life insurance tax implications.

A sale or buyback by the company can be structured to minimize taxes or to allow them to be paid over time, but there will be fees.

If an owner wants to fund their retirement with a buy-sell agreement, and they forget to consider the tax implications, they may be left with drastically reduced proceeds.

Because of the myriad of details that will need fine-tuning, and readjusting, you must find a reliable and trustworthy buy-sell agreement life insurance company to handle your company’s needs.

Check out buy-sell agreement life insurance quotes in your area by entering your ZIP code below.