The Use of Whole Life Insurance in Buy-Sell Agreements for Small Businesses

For businesses with multiple partners, a **Buy-Sell Agreement** is essential for continuity. Whole Life insurance is often the preferred funding vehicle for this agreement because it provides guaranteed, permanent liquidity when a partner dies, ensuring a smooth transition of ownership.

Funding the Agreement

The agreement outlines how a surviving owner will buy out the deceased owner’s share. Whole Life is used in one of two ways:

• **Cross-Purchase Plan:** Each partner buys a policy on the life of every other partner. The death benefit is used to buy out the deceased partner’s share.
• **Entity Purchase Plan:** The business itself buys a policy on the life of each owner. The business uses the death benefit to buy back the deceased owner’s share.

Why Permanent Coverage is Ideal

Permanent coverage is necessary because the agreement must remain in force indefinitely, regardless of the owners’ ages or health. The guaranteed death benefit and cash value stability provided by Whole Life are often superior to term insurance for this purpose.

Disclaimer: This content is for informational purposes only and is not financial or legal advice. A Buy-Sell Agreement must be drafted by a qualified business attorney and funded by a licensed insurance professional.