Key Person & Buy-Sell
Most Buy-Sells Are Drafted. Few Are Properly Funded.
Key person and buy-sell coverage are the two life insurance structures that protect a privately-held business from the financial damage of a critical death. Key person coverage is owned by the company on the life of an irreplaceable employee — founder, lead operator, principal rainmaker — with the business as beneficiary, so the company has cash to recruit a replacement and reassure lenders and customers. Buy-sell coverage funds a buy-sell agreement between co-owners; when one dies, the proceeds give the surviving owners cash to buy the deceased’s share from the family at a pre-agreed valuation, instead of the family inheriting the share and forcing a fire sale — or worse, becoming an unwilling business partner.
Begin a conversation →Three structures. One business to protect.
Key person coverage protects the business when an irreplaceable employee dies. Buy-sell coverage protects the ownership structure when a co-owner dies. Buy-sell itself splits into cross-purchase and entity-purchase, and the right structure depends on the number of owners and how the agreement is written.
Company-owned. Insured employee.
The business owns the policy on a critical employee — founder, technical lead, top producer, irreplaceable operator. The company is the beneficiary. If the insured dies, the proceeds fund the cost of replacement, lost revenue, and the time it takes to stabilize. No payout to the family.
- Company owns and is the beneficiary
- Sized to revenue impact and replacement cost
- Premiums non-deductible; proceeds tax-free in most cases
Owners insure each other directly.
Each owner owns a policy on the life of every other owner. When one dies, the survivors collect the proceeds and use them to buy the deceased’s share from the family at the valuation specified in the buy-sell agreement. Stepped-up basis for the surviving buyers; cleanest at two or three owners.
- Each owner holds policies on the others
- Surviving buyers receive a cost-basis step-up
- Administrative complexity grows with owner count
Company owns. Buys the share back.
The business owns one policy on each owner’s life. When an owner dies, the company collects the proceeds and redeems the deceased’s share from the family. Simpler administration than cross-purchase — one policy per owner instead of one per pair — preferred when there are four or more owners.
- One policy per owner, owned by the company
- Cleanest administration with multiple owners
- No step-up in basis for surviving owners
An unfunded buy-sell is just a promise.
If any of these describe your business, a structural review — coordinated with your attorney and CPA — surfaces what coverage exists, what the agreement actually requires, and what gap, if any, needs to be funded today.
- i. You’re a co-owner of a privately-held business with a buy-sell provision in your operating agreement, and you’re not sure if the funding still matches the valuation.
- ii. Your business depends on one or two irreplaceable people — founder, lead operator, principal rainmaker — and the company has no coverage on them.
- iii. You’ve recently brought on a new partner or recapitalized, and the existing buy-sell coverage hasn’t been updated for the new ownership structure.
- iv. Your operating agreement has a buy-sell provision, but no policy was ever placed to fund it.
Key person & buy-sell coverage, structured directly.
Remain Life Insurance Services, LLC reviews the operating agreement and current valuation, identifies the buy-sell structure required, and quotes the funding side-by-side with key person needs on critical employees — in coordination with the company’s attorney and CPA.
Request a structural review, or speak with a Remain advisor directly.