A business often depends on one or two people. Life insurance funds continuity — key person, buy-sell, and debt protection each cover a distinct risk.
Three layers of business coverage
Key person — the business owns the policy and receives the death benefit to recruit a replacement, cover lost revenue, and reassure creditors.
Buy-sell — funded by life insurance on each owner, it lets surviving owners buy a deceased owner's share at a pre-agreed price — keeping the business in the founders' hands and giving the family a fair, immediate cash payout.
Debt protection — a policy assigned to the lender covers the business loan at death so the family isn't forced to liquidate.
Key-person coverage
$600,000
Buy-sell per owner
$420,000
Debt-protection policy
$500,000
An unfunded buy-sell is a wish; a funded one is a guarantee
For any multi-owner business, the buy-sell agreement funded by life insurance is the single most important structure. Without it, a deceased owner's share passes to heirs who may not want to (or be able to) run the business, forcing a sale or a dispute at the worst moment. With it, the surviving owners get tax-free cash and the family gets a clean exit.