What type of insurance policy may be used to fund a buy-sell agreement in a business?

A buy-sell agreement is a legally binding contract that outlines what happens to a business's ownership in the event of an owner's death, disability, or departure. Life insurance policies are often used to fund these agreements, as they provide the necessary liquidity to buy out the deceased or departing owner's interest, ensuring the continuity of the business without financial strain.

Any form of life insurance can be utilized for a buy-sell agreement because different types cater to various business needs and financial situations.

Term insurance can provide an affordable solution for businesses looking for immediate coverage during a specific period. While it may not build cash value, it delivers the death benefit when needed. On the other hand, permanent insurance (which includes whole life and universal life) offers cash value accumulation, which can be beneficial for long-term planning and can also be a part of a buy-sell strategy. Universal life insurance, as a specific type of permanent insurance, provides flexibility in premium payments and death benefits, further adapting the buy-sell agreement to the needs of the business owners.

The key is that all these insurance policies provide a death benefit, which is crucial for funding the buy-out process effectively. Thus, any form of life insurance is deemed suitable to meet the needs of a buy-s