Buy-sell funding uses life insurance to provide the money behind a buy-sell agreement. When an owner dies, the policy proceeds give the surviving owners or the business the cash to purchase that owner's share at a fair price, keeping ownership intact and the departing owner's family fairly paid.
Why an agreement needs funding
A buy-sell agreement on paper sets the terms, but terms are only as good as the cash behind them. Without funding, the surviving owners may have to borrow, sell assets, or strain the business to buy out a deceased owner's share, and the departing owner's family may wait or fight for fair value. Life insurance solves this by delivering a lump sum exactly when it is needed, turning a written promise into a funded certainty.
The common structures
There are two main approaches. In a cross-purchase, each owner buys a policy on the others, and uses the proceeds to buy the deceased's share directly. In an entity or stock-redemption plan, the business owns the policies and buys back the share. Each has different tax and administrative implications, especially as the number of owners grows. The right structure depends on the number of owners, the business type, and the goals, and it should be set with your attorney and accountant.
Valuation and keeping it current
A buy-sell is only fair if the valuation is realistic, and the coverage should track the value of the business as it grows. A plan funded years ago at an old valuation can leave a shortfall. Reviewing both the agreement and the insurance periodically keeps them aligned, so the buyout reflects what the business is actually worth when the time comes. This review is one of the most overlooked parts of business continuity planning.
How we handle it
We work alongside your attorney and accountant, who draft the agreement and handle the tax structure, and we provide the insurance that funds it. We match the coverage to a current valuation and the chosen structure. We keep the funding aligned as the business grows. We do not provide legal or tax advice, so we coordinate rather than replace your professionals, and make sure the insurance piece does its job.
