Life Insurance
Buy-Sell Agreement
A buy-sell agreement is a legally binding contract that dictates how a business owner's interest will be transferred upon death, disability, or departure—often funded by life insurance so that surviving owners or the business entity have immediate cash to buy out the deceased owner's heirs.
Last reviewed: May 2026 · Editorial methodology
Definition
A buy-sell agreement—also known as a business continuation agreement or buyout agreement—is a contract executed among business co-owners that pre-establishes the sale price and buyer for each owner's interest upon a triggering event such as death, disability, divorce, or voluntary departure. Life insurance is the most common funding mechanism because it provides an immediate, predictable cash payment at the time it is most needed—when an owner dies suddenly. There are two primary structures: a cross-purchase arrangement, where each co-owner buys policies on the other owners and purchases the deceased's interest personally; and an entity purchase (stock redemption) arrangement, where the business entity owns the policies and redeems the deceased owner's shares directly. For a three-owner business valued at $3 million with equal 33% stakes, each owner's interest is worth approximately $1 million, requiring coordinated life insurance coverage to fund the buyout. Buy-sell agreements should be reviewed every three to five years to ensure coverage amounts keep pace with business valuation growth. Without a funded buy-sell agreement, surviving owners may be forced into an unwanted business partnership with the deceased owner's spouse or heirs.
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Cover Forge USA Editorial Team
Editorial Lead
This article was researched and written by the Cover Forge USA editorial team against federal sources (NAIC, CMS, FEMA, DOL, SSA, state DOIs) and standard policy forms. Bylines organize content by topic — they do not assert individual licensure. See our editorial-policy for details.
Reviewed 2026-06-14
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