Life Insurance for Business Owners: Key Man, Buy-Sell, and More

Business owners need life insurance for reasons that go far beyond personal compare whole life versus term options financial protection. The right policies protect the estimate term life insurance costs business, partners, and employees from the catastrophic impact of an untimely death.

Key Man (Key Person) Insurance

A key man policy is owned and paid for by the business, with the business as beneficiary. The death benefit compensates the company for lost revenue, covers hiring and training a replacement, and provides financial stability during transition. calculate your key person insurance needs Any employee whose death would materially impact business revenue qualifies — founders, top salespeople, key engineers.

Coverage amount typically equals 3-10x the key person’s annual compensation or projected contribution to revenue. The premium is not tax-deductible, but the death benefit is generally tax-free.

Buy-Sell Agreement Life Insurance

When business partners own life insurance on each other, the death benefit funds a buy-sell agreement — allowing surviving partners to purchase the deceased partner’s ownership interest at a predetermined price. Without this, heirs may inherit a business interest they don’t want and can’t value, creating conflict and potential business dissolution.

Structures: Cross-Purchase vs Entity-Purchase

In a cross-purchase agreement, partners own policies on each other. In an entity-purchase (stock redemption), the business owns policies on all partners. Cross-purchase increases the surviving partner’s cost basis (better tax treatment on eventual sale); entity purchase is simpler with many partners.

Executive Benefit Programs

Life insurance-funded executive benefits — deferred compensation plans, split-dollar arrangements — attract and retain key executives by providing tax-advantaged supplemental retirement income. These are complex strategies best structured with an experienced business insurance advisor.