Buy-Sell Agreement Insurance: A Comprehensive Guide for Businesses

Buy-Sell Agreement Insurance, also known as Key Person Insurance, is a type of life insurance policy that a business purchases on a key individual within the company. The policy provides a financial cushion to the business in the event of the key person’s untimely death.

What is Buy-Sell Agreement Insurance?

Buy-Sell Agreement Insurance is designed to protect the business from the sudden, unexpected loss of a key employee. A key employee or key person is someone who is vital to your company and not easily replaceable. This could be a top salesman, a founder, or a CEO.

Calculating Buy-Sell Agreement Insurance Coverage

Calculating the coverage needed for a key employee can be tricky. A good rule of thumb is to buy key person coverage between eight to 10 times the person’s salary. Another way to determine coverage needs is to identify the key person’s monetary value to the business. This can be challenging but is a more precise way to identify coverage needs.

Types of Buy-Sell Agreement Insurance

There are two variables to consider when discussing buy-sell agreement insurance:

  • Key Employee: A non-owner, zero equity employee. (Example: top salesman)
  • Key Person: An owner or shareholder with equity. (Example: founder or CEO)

The key person insurance calculator generates live calculations based on the information you provide.

Considerations Before Buying Buy-Sell Agreement Insurance

Before buying Buy-Sell Agreement Insurance, it’s important to consider the potential implications. For instance, if the individual you are seeking coverage for has equity in the company, then you’ll have to account for the price of their equity and involvement in the business.

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