cross purchase buy sell agreement sample :

Here is a sample buy sell agreement for a partnership between John and Tom. John and Tom have a successful two person partnership, with a current business valuation of $2,000,000. To assure the continued success of the company, a separate life insurance policy is purchased for each partner’s share based on the value of the business.

In a business worth $2,000,000 with two partners, each life insurance policy would be for $1,000,000.

The beneficiaries of the insurance would be each partner’s heirs.

In the event of the death of a partner, the buy-sell agreement is activated and the $1,000,000 insurance policy is u sed to buy out the deceased partner’s share.

2. Stock Redemption Buy Sell Agreement



A stock redemption plan is also often called an entity purchase agreement.

What is a stock redemption plan?

In a stock redemption plan, the company buys life insurance policies on each of the owners.

If a shareholder dies, the company buys the deceased owner’s share from their heirs with the life insurance death benefit.

With an entity purchase agreement the deceased shareholders family receive immediate liquidity at fair market value for their share of the business.

Stock redemption plans are much easier to monitor when there are several partners because only one policy per partner is required.

Plus, the company pays for the difference in life insurance premiums due to varying partner’s age, health, and gender.

The company will pay for the premiums, be the policy owner, and be the beneficiary on each of the life insurance policies in a stock redemption plan.

Entity purchase vs cross purchase, which is better?



The entity buy sell agreement life insurance plan has the disadvantage of not giving the surviving partner’s a step-up in basis when the corporation purchases the deceased partner’s interest.

So, stock redemption plans are subject to higher capital gains taxes than cross-purchase agreements if their share is sold prior to their death.

3. Wait-and-See Buy-Sell Agreement

With a Wait-and-See Buy-Sell Agreement business partners can postpone the selection of an entity purchase or a cross-purchase buy-sell agreement until after an actual death.

The agreement provides the option for the business to purchase the surviving family member’s interest.

If the company does not make the purchase then, the cross-purchase option is usually activated. Many wait-and-see agreements may also have additional options if the cross-purchase option is not utilized.

What Does Buy Sell Insurance Cost?

Do you need life insurance quotes for your small business?

We have got you covered!

Our goal is to find the best rates for any company that buys life insurance policies on its key partners.

Simply, click on “Get Quotes” to compare quotes in minutes:

Buy-Sell Agreement Insurance Set Up

As you can see, having the proper buy sell life insurance structure for your company is very important. Typically, Affordable Life USA works with a few other key professionals when setting up business life insurance for our clients.

Your team should include the following specialists:

Attorney – Usually a buy-sell agreement is drafted by an attorney, who ensures that the agreement protects each owner’s interests.

Usually a buy-sell agreement is drafted by an attorney, who ensures that the agreement protects each owner’s interests. CPA – Accountants will help with the possible income tax issues for the buyer, the seller, and the tax implications for the business.

– Accountants will help with the possible income tax issues for the buyer, the seller, and the tax implications for the business. Valuator – A business valuation specialist can provide ideas on how the partners should determine the price in a formal buy-sell agreement.

A business valuation specialist can provide ideas on how the partners should determine the price in a formal buy-sell agreement. Life Insurance Agent – A life insurance agent is needed to assist you with the funding of your buy-sell contract.

How to Qualify for Buy-Sell Life Insurance

The biggest challenge to funding a buy-sell agreement with life insurance is that frequently there’s a difference in the health and age of the partners.

Partners that are older or in average health will pay higher premiums, compared to the younger healthier partner.

Getting life insurance for senior partners usually takes a bit more time and patience.

It is very important to work with an agency capable of handling large life insurance polices and variety of health issues to make the buy-sell agreement mutually viable.

Many agents will give you quotes based on very little personal information. These premiums are the lowest available and are only accurate for individuals in perfect health.

Your final price is based on many personal factors like medical background and family history.

Both partners covered in the buy-sell agreement will be required to provide their medical history to a nurse when she comes out to do a quick examination.

The results of your medical exam are then forwarded to the home office for review by the insurance company’s underwriters.

The underwriting time varies depending on the agent processing the application, and if your doctor’s records are requested by the underwriter.

Remember, that life insurance companies often verify your medical history by ordering medical records.

If medical records are needed form your doctor the normal time is three weeks from the time you take your examination.

The results of the medical testing can also be used concurrently with business owners needing an additional policy for keyman life insurance coverage.

Buy-Sell Life Insurance Policy Types

What type of buy sell life insurance policy does your company need?

Buy-Sell Agreements can be funded with either term or permanent life insurance.

The life insurance premiums will become an ongoing business expense and will need to be paid each year to maintain the policies.

Term life insurance offers the advantage of lower premiums for funding a buy-sell agreement for a specified period of time frame. An ideal use for term coverage would be for an older partner who plans on retiring within the term of a policy.

Great rates can be found for term life insurance business owners with companies like Banner Life, Protective Life, and American General.



Normally, Banner Life comes up with excellent prices for applicants taking a few medications or having a few minor health issues.

$500,000 $750,000 $1,000,000 10 year 10 year 10 year Age 30 $15 $20 $22 Age 40 $19 $25 $29 Age 50 $42 $64 $75 20 year 20 year 20 year Age 30 $21 $27 $33 Age 40 $28 $41 $52 Age 50 $73 $108 $142 30 year 30 year 30 year Age 30 $32 $47 $58 Age 40 $53 $76 $99 Age 50 $125 $185 $252

* The sample rates are for 10, 20, and 30 year term life insurance polices, non-smoking males, preferred plus rate class

Permanent life insurance has a higher in cost but has the advantage of accumulating cash values. This policy may be appropriate for younger partners because the accumulated cash value may also be used to fund a future buyout of a partner.

Companies which offer liberal underwriting and also offer cheap rates for permanent coverage include carriers like American General, North American Life, Lincoln Financial, and Protective Life.

There are many scenarios which can come into play when selecting the best policy to fit your business. Our goal is to find a viable option on the insurance related component of the buy-sell agreement.

Life Insurance for Business

We have developed a disciplined process to assist successful companies with many of their personal and small business life insurance needs.

We often find many busy entrepreneurs like to “kill two birds with one stone”.

In many cases, when review your buy-sell coverage, we can also take a look at other business planning ideas too. Here are a few other ways we can assist you:

Key Person Life Insurance – Key man life insurance is a policy that provides a business much needed capital in the form of a death benefit, if a key person should die. So, a key man life insurance policy is purchased by the company on the life of the key person. Business Loan Life Insurance – Business loans are great for expanding your company, but also bring about the worry of the death of the company owner. Business loan life insurance can ease these concerns while the business loan is being paid off. Estate Planning for Business Owners – Estate planning for business owners is required to make sure you have an assigned successor for your business. It is important that your company’s succession plan is outlined in these documents, including vital business information such as bank accounts, client contacts, and outstanding debt. How Much Does Life Insurance for Business Cost? Any company that buys life insurance will eventually need quotes?

Our goal is to find your firm the best rates on the coverage used for funding a buy sell agreement, key person policy, or business loan coverage.

