Protecting a business you've built.

Why businesses use life insurance at all

For a business with more than one owner, or one that depends heavily on a specific person's relationships or expertise, that person's sudden death creates a business problem, not just a personal one: lost income, lost expertise, and potentially a forced sale or dissolution if surviving owners can't afford to buy out a deceased partner's share. Life insurance is a common way to fund the solution to that problem — it doesn't solve it by itself.

Buy-sell agreements, explained

A buy-sell agreement is a legal contract between business owners that sets out what happens to an owner's share of the business if they die, become disabled, or leave. Without one, a deceased owner's share typically passes to their heirs — who may have no interest in or ability to run the business, and no obligation to sell it back on reasonable terms. Life insurance is often used to fund a buy-sell agreement: the death benefit gives surviving owners the cash to buy out the deceased owner's share at a price the agreement already established, rather than negotiating under pressure. The agreement itself is a legal document and needs to be drafted by an attorney — the insurance funds it, but doesn't replace the legal structure.

Key person coverage, explained

Key person coverage insures the business (not the individual's family) against the financial impact of losing someone whose knowledge, relationships, or production are difficult to quickly replace — a founder, a top salesperson, a specialized technical lead. The business owns the policy and is the beneficiary; the payout is generally meant to cover costs like recruiting and training a replacement, lost revenue during the transition, or paying down debt the key person's departure might otherwise jeopardize.

Other structures worth knowing about

Executive benefit arrangements — sometimes funded with cash-value life insurance — are occasionally used to help retain key employees, though the specifics vary considerably by structure and by the tax and regulatory rules that apply. These arrangements are more specialized and typically require coordination with both a tax advisor and legal counsel to set up correctly.

Where your other advisors fit in

Life insurance can fund several of these structures, but it doesn't replace the legal work of drafting a buy-sell agreement or the tax and accounting work of structuring an executive benefit correctly. The strongest version of any of this involves your insurance agent, your business attorney, and your CPA coordinating — not any one of them working in isolation.