Your Buy-Sell Agreement Is Only as Good as Its Funding
Most business partners have a buy-sell agreement on paper. Most of those agreements have no money behind them. See exactly what each owner owes in a buyout event, how large the funding gap is today, and what it takes to close it.
Calculate My GapA buy-sell agreement defines the obligation. It does not create the cash to meet it. Without a funded mechanism, surviving owners face a forced borrowing event, a fire sale, or an unwanted outside partner at the worst possible moment.
As the business grows, so does each owner's buyout obligation. Most buy-sell policies are set at founding and never updated to reflect the current business value, leaving a growing gap between the obligation and the coverage.
A properly structured life insurance policy creates an immediate, income-tax-free pool of money at exactly the moment the buyout obligation is triggered. It is the most cost-effective and predictable funding mechanism available.
Business and Owner Details
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Buy-Sell Funding Analysis
Common Questions
What is a buy-sell agreement?
A buy-sell agreement is a legally binding contract between business co-owners that governs what happens to each owner's interest if they die, become disabled, retire, or exit the business. It sets a price or valuation formula and defines who can buy the departing owner's share.
What does "unfunded" mean?
A buy-sell agreement is unfunded when there is no liquid asset, such as life insurance, set aside to actually pay for the buyout. An unfunded agreement is essentially a legal promise with no money behind it. When the triggering event occurs, the remaining owners must come up with cash they may not have, often forcing them to borrow, sell assets, or bring in an unwanted outside partner.
Why use life insurance to fund a buy-sell?
Life insurance creates an immediate, income-tax-free pool of money precisely when the buyout is triggered. It is predictable, cost-effective compared to alternatives, and does not require the business to accumulate cash over time. It is by far the most common method for funding buy-sell agreements between business partners.
What is cross-purchase vs. entity redemption?
In a cross-purchase structure, each owner buys a policy on the other owner(s) and uses the death benefit to buy the deceased's shares directly. In an entity redemption structure, the business owns the policies and buys back the shares. The right structure depends on the number of owners, tax considerations, and your state's laws. A King Legacy Group advisor can walk you through both.
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Fund the Agreement. Protect Every Owner.
A funded buy-sell is one piece of a complete business protection plan. King Legacy Group reviews your buy-sell structure, key person exposure, succession gaps, and personal retirement readiness in a single complimentary strategy conversation. See your LivingLEGACY™ Designed.
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Important. This calculator is for educational purposes only and does not constitute financial, legal, or insurance advice. Business valuation is highly complex and fact-specific. Coverage gap estimates are simplified and do not account for all factors affecting insurability, premium costs, policy structure, or the tax and legal implications of different buy-sell funding mechanisms. Consult qualified legal, tax, and financial professionals before establishing or modifying any buy-sell agreement or insurance arrangement.