Buy Sell Life Insurance- what is it and do you need it?

What is buy sell life insurance?

Buy sell life insurance is a term used for issuing life insurance protection for a business.

The death of a business owner or partner can be a uncertain time for the life of a business. A buy-sell agreement can help protect a business owner and their business from the effects of unintended transfers of ownership.

How does buy sell life insurance work?

In simple terms, the buy sell agreement spells out what happens to the ownership interests of a business partner who dies. Life insurance provides money for a buyout if one of the partners die.

Who can benefit from buy sell life insurance?

From modest family operations to multi-billion dollar corporations. The death of an owner can seriously cripple a business. Buy sell life insurance allows for a smooth transition in ownership to the surviving owners.

Without the buy sell life insurance, the heirs of the deceased owner will inherit those shares of the company. They then can sell the shares of the business to anyone. This could force important decisions about how the company is run to people outside of the surviving shareholders control.

A heir of the deceased might not want to be a part of the business. A Buy sell life insurance agreement allows the deceased heir to turn their inherited interest in the business into cash. This frees them from the burden of taking on the role of an owner of the business.

By planning ahead with buy-sell life insurance, you can avoid the unnecessary hardship on both the family and remaining partners.

The business can continue to succeed into the future, and avoid lengthy probate court and lawsuits.

Why use life insurance?

Creating the buy-sell agreement only protects the business partially. For complete protection, the surviving owners must have funds available to buy the deceased’s portion of the business from the heirs.

This may mean borrowing the funds at an expensive interest rate. It could mean liquidating business capital that is still needed by the business. Sometimes partner’s  are forced to use their personal property-homes, cars, etc. as collateral on a private loan.

And ultimately, if none of these options work, the heirs of the deceased are left with shares in a business they don’t want, and no inheritance.

Life insurance is a cost-efficient, relatively simple way to do this, and the funding may not only be guaranteed but generally tax-free.

Different types of buy sell life insurance agreements

There are two ways a buy-sell agreement can work. One is a cross-purchase agreement. With the cross purchase agreement each owner signs an agreement called the buy-sell agreement. This agreement is drawn up by an attorney, not an insurance agent.

This agreement obligates the surviving owners to buy the shares of the company from the heirs of the owner that passes away. Next, each owner pays for and is beneficiary of life insurance on the other owner’s lives.

Finally, upon the death of an owner, the surviving owners  receives the life insurance death benefit payments, and uses that money to buy the shares of the business belonging to the deceased heirs.

The second type agreement is the entity purchase agreement. Again, first the company and owners sign a written buy-sell agreement. This time though the agreement obligates the company to buy the shares of an owner upon death.

Then, the company purchases, owns, and pays premium on a life insurance policy on each of the owners.

The company is names as the beneficiary of that life insurance policy. Upon the death of an insured owner, the company receives the death benefit payment, pays the deceased heirs, and transfers the business interest back to the company.

The choice between a cross-purchase agreement and a entity purchase agreement buy-sell agreement will depend on the specific situation of the company. Their are advantages and disadvantages of each approach. An attorney can help determine which agreement is best for each situation.

Example of a buy-sell life insurance situation

Joe and Tom are equal part shareholders of ABC, Inc. a large auto parts distributor set up as a C-Corporation.

ABC, Inc. has been in business for a little over a decade, and Joe and Tom are both very involved in the day to day operations of the business. Joe manages the books and buying functions that keep the products on the shelf for the company.

Tom manages the staff of about 15 organizing schedules, and overseeing the advertising and promotional activities.

As the business continues to grow Joe and Tom decide it’s time to engage in some business continuation planning in the event one of them unexpectedly passes away. Both owners are married and have built the company from the ground up. None of their children are interested in the business.

After meeting with their attorney and drafting a buy sell agreement, Joe and Tom receive quotes for life insurance an apply. They each apply for $1 million of protection representing their share of the company. They each decide to purchase 30 year guaranteed level term life insurance.

Since Tom is several years older than Joe and has some health problems  they decide to use the entity purchase agreement. This is because Tom’s premium will be considerably higher than Joe’s premium.

The cross purchase would create a much higher premium cost for Joe since Tom is older and has some health conditions. With the entity purchase agreement the premium cost is paid by the corporation thus making it a more equitable purchase.

The trigger of the buy sell life insurance agreement

Building the business for years has been a lot of hard work. Five years after the agreement and life insurance coverage was placed in force, Tom has a major heart attack and passes away.

Thanks to the buy sell agreement the business is named as beneficiary and is paid Tom’s share of the death benefit. With the life insurance money Joe purchases Tom’s shares from his heirs. Joe now owns 100% of the business and Tom’s heirs have cash for Tom’s share of the business.

Buy sell life insurance is an easy and affordable way for business owners to protect their business. If you would like to discuss how these solutions might help you, please contact us at 1-888-393-9003 or 




For a FREE quote

Call, text, email or fill out our instant quote form:

Call: 678-207-8160
Text: 678-207-8160
Instant quote form: Click here

How can I help?

Mike Raines

I am an independent life insurance agent with over 30 years’ experience. I am an expert in finding coverage for those with past or current medical history such as heart disease, diabetes, post cancer, etc. I also specialize in those that participate in scuba diving, mountain climbing, private pilots, etc. I work with the best life insurance companies in the nation, such as Prudential, AIG, Protective Life, Transamerica to name a few. Each carrier has different opinions on rates and underwriting, and it is my job to match you with the best company. To do that, I need to ask you a few questions about your health and lifestyle to qualify you.

For a FREE quote, call, text or email:

Call: 678-207-8160

Text: 678-207-8160


Mailing Address:
3482 Keith Bridge Road Suite #125
Cumming, GA 30041


Mike and Special Risk Term are absolutely top shelf! I was worried that I would not be able to get term life insurance to protect my family, or that the costs would be exceedingly high.

Mike knew the industry inside and out and knew which companies would provide the best options. He coordinated with the underwriters to get the job done and get me an affordable plan, and kept me updated throughout the entire process. Not to mention he did it all electronically in the age of COVID without ever having to meet in person. Highly recommend. Excellent service and expertise!

- Chris M. from Laguna Niguel, CA.

Thank you very much, Mike, for all your help in this long process. I know it wasn’t easy, but I appreciate you not giving up on my application and helping provide peace of mind to me and my family.

- Craig S. from Savannah, Ga.

I contacted Mike for advice with life insurance. I had recently left a large firm (where I had life insurance coverage as part of compensation package) to start my own company.  Therefore I needed to self fund my life insurance.  Because of some past health issues I figured I may need to do extra tests to validate my current excellent health status and insurability.  Mike was great to work with, knowledgeable about how underwriters view things, how they will want lots of data from my doctors, and he explained the normal full battery of new tests and data as well as additional or special tests they might want based on my history.  He helped me through the valley to the other side of the life insured promised land for $500K term policy with a duration that meshes well with my retirement date/options and coverage for my family if needed. I highly recommend Mike with Special Risk Term.  He can help you too, so call or email today.

- Richard M. from Ann Arbor, MI

Mike and his team did an extra ordinary job of handling my life insurance situation.  I was unable to secure life insurance because I had cancer 17 years ago however Mike and his team navigated through the challenges to get me a 15 year policy at great monthly rates. Thank you Mike for all your work in in this challenging situation.

- Nathan S. from St. Paul, MN.

Mike did an awesome job in finding affordable coverage for myself and my husband. Highly recommend his services.

- Shannon from Atlanta, GA.

Best rates and best service I have ever received.

- Robert from Kennesaw, GA.

As part of the process of buying a new business, I needed life insurance. However, my congenital heart defect made agents squirm over the phone. Then I found Mike, who not only understood my situation, but found two solutions for me. Within a week, I had confirmation of an AD&D policy and a Term Life policy…all at very reasonable rates. The sense of relief can’t be underestimated. Thank you, Mike!

- Heather G. From Crestview, Fl.

Mike and his team made the entire process from start to finish very seamless and also overcame the task with us being multiple states apart with ease. With the easy process and very competitive priced insurance for high risk athletes, you have no need to look anywhere else for coverage. Thanks to Mike and his team for all they did and I highly recommend them for your Special Risk Life Insurance needs.

- Tyler C. from Danville, VT.

Two Thumbs Up for Mike at Special Risk Term

- Yaniv from Troy, MO.

I tried several places before I came across Mike’s website. The insurance at these other places was either very expensive, or the company wouldn’t cover me because of my health history. Mike was able to find me a reasonably priced policy with a major insurer. He did a great job locating a policy that works well for me.

- Jeff from Hermon, ME.

We work with individuals across the nation to secure the best life insurance rates.

This entry was posted in Business. Bookmark the permalink.

Leave A Reply