How do business partners fund a buy-sell agreement with life insurance, and how much do they need?
Each owner is insured for roughly the value of their share, so that when one dies the cash exists to buy that share from their family at the price the agreement sets. In a cross-purchase plan the owners insure each other; in an entity-purchase plan the company owns the policies and buys the share back, and since the Supreme Court’s 2024 Connelly decision that design can raise the company’s value for estate tax. The coverage on each owner is about their percentage times the business value the agreement uses.
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Starting prices, per person. Couples can set up a joint trust for both of you, or two plans with $100 off the second.
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Boring Insurance Agency is a licensed insurance agency, not a law firm, and does not provide legal advice. No attorney-client relationship is created by using this service. These documents are self-help forms prepared from the information you provide. Laws vary by state, and your circumstances may require changes these forms do not make. We recommend you have an attorney licensed in your state review your documents before you sign them.
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Kevin Kelsey
Founder | Principal Agent
Founder and principal agent of Boring Insurance, CA License #6011822. He put off his own estate plan because he did not want to take the time to find a lawyer, then built the offer so owners can set up a will or living trust online and fund it with life insurance. He is a licensed agent, not an attorney, and these pages are not legal advice.
Cross-purchase or entity-purchase
Who owns the policies
- Cross-purchase
- Each owner owns a policy on each other owner
- Entity-purchase (redemption)
- The company owns one policy on each owner
Policies for 3 owners
- Cross-purchase
- Six
- Entity-purchase (redemption)
- Three
Who buys the share
- Cross-purchase
- The surviving owners
- Entity-purchase (redemption)
- The company
Estate tax note
- Cross-purchase
- Proceeds are not company assets
- Entity-purchase (redemption)
- After Connelly, proceeds can raise the company’s value
Paperwork to watch
- Cross-purchase
- Who pays premiums when owners’ ages differ
- Entity-purchase (redemption)
- Written notice and consent before an employer-owned policy is issued
The agreement decides the design. Your attorney and CPA should choose it; we place the policies to match.
How much, worked through
$1,000,000
- Your share
- 50%
- Coverage on your life
- About $500,000
$2,000,000
- Your share
- 33%
- Coverage on your life
- About $660,000
$3,000,000
- Your share
- 25%
- Coverage on your life
- About $750,000
Illustrations, not quotes. Use the value your agreement sets and review it whenever the business grows.
The detail
Federal law excludes life insurance paid "by reason of the death of the insured" from gross income, and keeps the exclusion when a policy is transferred "to a partner of the insured, to a partnership in which the insured is a partner, or to a corporation in which the insured is a shareholder or officer."
26 U.S. Code section 101 (Cornell Legal Information Institute)
For a policy a business owns on an employee, the income tax exclusion is limited to the premiums paid unless, before the policy is issued, the employee is told in writing and consents in writing.
26 U.S. Code section 101 (Cornell Legal Information Institute)
The Supreme Court held on June 6, 2024 that "A corporation’s contractual obligation to redeem shares is not necessarily a liability that reduces a corporation’s value for purposes of the federal estate tax." The company there carried $3.5 million of life insurance on each of two brothers to fund the redemption.
Connelly v. United States, 602 U.S. ___ (2024), decided June 6, 2024
The federal basic exclusion amount is $15,000,000 per person for deaths in 2026, so the Connelly effect matters mainly to larger estates.
What this means for you
- The agreement comes first. Life insurance funds a promise. Without a written buy-sell agreement saying who buys, at what price, the money arrives with no instructions.
- Match the policy to the agreement. Owner, beneficiary and amount on each policy must match what the agreement says. A mismatch is how a buyout ends up in court.
- Revisit the value every year or two. A fixed price written when the company was smaller underpays a widow and overpays nobody. Many agreements use a formula or an appraisal for that reason.
- Your estate plan receives the money. Name your living trust in your own documents so the buyout proceeds land where your plan says, not in probate.
Go deeper on any of these
Related questions
- Is buy-sell insurance the same as key person insurance?
No. Buy-sell coverage pays for an owner’s share so the others can buy it. Key person coverage pays the business for the lost value of someone it depends on, and buys nobody’s share.
- Key person insurance: how much
- Term or permanent life insurance for a buy-sell?
Term is common when the owners expect to sell or retire within its length. Permanent coverage is used when the agreement is meant to last until death. Price depends on each owner’s age and health.
- Term or permanent
- What happens if an owner cannot qualify for life insurance?
The agreement still needs funding. Options include a policy at a higher rating, a smaller policy plus installment payments, or a sinking fund. We shop the carriers; approval is never guaranteed.
- Do you draft the buy-sell agreement?
No. An attorney should draft it for the owners. We place the life insurance that funds it and set up each owner’s will or living trust.
Set it up, then fund it
We set up wills and revocable living trusts through our online document platform, from $695 for a will and $1,495 for a trust, and we place the life insurance that pays into them. We do not draft operating, partnership or buy-sell agreements, and we do not give legal advice; when your situation needs an attorney, the Plan Check says so.
Boring Insurance Agency is a licensed insurance agency, not a law firm, and does not provide legal advice. No attorney-client relationship is created by using this service. These documents are self-help forms prepared from the information you provide. Laws vary by state, and your circumstances may require changes these forms do not make. We recommend you have an attorney licensed in your state review your documents before you sign them.
Written by Kevin Kelsey, founder and principal agent, CA License #6011822. Last updated 2026-10-05. See all guides.