Life insurance that funds your buy-sell agreement and protects you from losing a key person, so an owner's death or disability doesn't become the end of what you've built.
A buy-sell agreement is a contract between business owners that spells out who can buy an owner's share, at what price, and when: death, disability, retirement, or departure. Without money behind it, it's just a promise.
We work alongside your attorney and CPA. We don't provide legal or tax advice. Your attorney drafts the agreement and your CPA advises on valuation and taxes. We make sure the insurance is in place, sized correctly, and owned the right way so the money is there when it's needed.
Life insurance is the most common way to fund a buy-sell agreement because it delivers the full purchase price at exactly the moment it's needed.
With your attorney, the owners set the triggers (death, disability, retirement), how the business will be valued, and who buys whose share.
We shop hundreds of insurance companies and place a policy on each owner sized to the value of their share, owned by the other owners or by the business depending on your structure.
The death benefit, generally income-tax-free, goes to the buyer, who uses it to purchase the share from the owner's estate at the agreed price.
The two most common ways to set up a buy-sell. The right choice depends on how many owners you have, your entity type, and your tax picture.
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| Feature | Cross-purchaseOwners buy from each other | Entity redemptionAlso called stock redemption |
|---|---|---|
| Who owns the policies | Each owner owns a policy on each of the other owners | The business owns one policy on each owner |
| Who buys the share | The surviving owners, personally | The business buys back (redeems) the share |
| Number of policies | Grows quickly: 2 owners need 2 policies, 4 owners need 12 | One per owner |
| Who pays the premiums | Each owner; costs can be uneven when ages or health differ | The business |
| Cost basis for surviving owners | Increases by the purchase price, which can lower taxes if they sell later | Generally no increase (varies by entity type) |
| Estate-tax valuation | Policy proceeds are paid to the owners, not the business | After the 2024 Connelly v. United States decision, company-owned proceeds may increase the business's value for estate tax purposes |
| Often a good fit for | Two or three owners of similar age | More owners, simpler administration, or big age gaps |
General information only, not legal or tax advice. Hybrid, "wait-and-see," trusteed, and LLC-held arrangements also exist. Your attorney and CPA should choose the structure; we'll insure whichever one they recommend.
A long-term disability can be even harder on a business than a death. The owner can't work, still owns their share, and their family may need income.
Many buy-sell agreements list disability as a trigger, but life insurance won't pay for it. Disability buy-out insurance can. It pays a lump sum or installments so the healthy owners can buy the disabled owner's share at the agreed price.
Your attorney defines what counts as a disability. The policy is written to match it as closely as possible.
Benefits typically begin after a waiting period, often 12 to 24 months, since many disabilities aren't permanent.
Choose how the buyout is paid to match your agreement and your budget.
Enter your business value and each owner's percentage. You'll see how much coverage it would take to fund every share, then send it to your advisor for a real quote.
Key person insurance is life insurance your business owns on someone whose skills, relationships, or know-how drive results.
That could be an owner, your top salesperson, a lead technician, or the only person who really knows the books. If that person dies, the business receives the death benefit, generally income-tax-free, to bridge the gap while you recover, recruit, and rebuild. Disability coverage for key people is available too.
Replace profits lost while sales, production, or client relationships recover.
Reassure lenders and suppliers. Some lenders require key person coverage for a business loan.
Pay for recruiting, signing bonuses, and the months it takes a replacement to get up to speed.
Keep the lights on and payroll met while you decide whether to rebuild, restructure, or sell.
Estimate lost profit, replacement costs, and debt you'd want covered. It takes about a minute.
Two or more owners who need a clear, funded plan for what happens if one of them is gone.
Pass the business to the children who work in it while treating the other heirs fairly.
Medical, dental, legal, accounting, and other practices where clients follow a specific person.
Keep lenders and investors confident that the business can survive losing an owner.
Buy-sell and key person coverage protect the people. Commercial property & casualty protects everything else: your building, equipment, vehicles, and your business against lawsuits.
When the same local team handles your business planning and your commercial policies, nothing falls through the cracks.
A buy-sell agreement is a legally binding contract between the owners of a business. It spells out what happens to an owner's share if they die, become disabled, retire, or leave: who can buy it, how the price is set, and how it gets paid for. It protects the remaining owners, the departing owner's family, and the business itself.
Yes. Your attorney should draft or update the agreement itself, and your CPA should weigh in on valuation and taxes. Our job is the funding: making sure the life and disability insurance is in place, sized correctly, and owned the right way so the money is there when the agreement is triggered.
Generally enough to buy each owner's share at the price your agreement sets. If the business is worth $1.2 million and split evenly between two owners, each owner's share is about $600,000. Because business values change, many agreements use a valuation formula or require the owners to update the value every year, and coverage should be reviewed when they do. Try the buy-sell calculator for a quick estimate.
It depends on how many owners you have, your entity type, age and health differences among owners, and tax considerations. Cross-purchase plans can give surviving owners a higher cost basis but get complicated with more owners. Entity redemption is simpler to administer. Your attorney and CPA should make the call, and we'll insure whichever structure they recommend.
That's common, and there are ways to handle it: different policy types, adjusting who owns and pays for which policy, or funding part of the buyout through installments. Because we're an independent agency, we can shop hundreds of insurance companies for the plans most likely to approve each owner.
Premiums are generally not tax-deductible when the business is the beneficiary. In return, the death benefit is generally received income-tax-free, as long as the employer-owned life insurance notice-and-consent requirements are met before the policy is issued. We help with that paperwork, but please confirm the tax treatment with your CPA.
Policies can often be transferred to the departing owner, kept to help fund a lifetime buyout, or restructured. Some transfers of life insurance have tax consequences under what's called the transfer-for-value rule, so we coordinate with your CPA before anything changes hands.
Yes, especially if it's more than a few years old, the business value has grown, owners have changed, or the agreement isn't funded with insurance. A 2024 U.S. Supreme Court decision, Connelly v. United States, also changed how some company-owned life insurance is treated when valuing a business for estate tax purposes, which is worth discussing with your attorney if your agreement uses an entity-redemption structure.
Tell us about your business and your owners. Your Magnolia advisor will show you what it takes to fund your buy-sell agreement and protect your key people, and will work with your attorney and CPA to get it done.