What is a buy-sell agreement and how does life insurance fund it?
A buy-sell agreement is a contract between business partners that defines what happens to a partner's ownership stake if they die, become disabled, or exit the business. Without one, the deceased partner's heirs may inherit their share — becoming involuntary business partners.
Life insurance funds the buyout. Each partner carries a policy on the other(s). When one partner dies, the surviving partner receives the death benefit and uses it to purchase the deceased partner's share from their estate at a predetermined price.
This protects business continuity, ensures heirs receive fair value without having to wait for a sale, and prevents disputes. It's one of the most important planning tools for any business with multiple owners.
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