Entity-Purchase Agreement Funding
In an entity-purchase arrangement, the business may own life insurance policies on the owners and use the death benefit to redeem a deceased owner’s share.
How this coverage works
The business owns one policy on each owner and is the beneficiary. When an owner dies, the business uses the proceeds to buy back that owner’s share.
One policy per owner rather than one per pair, which is why it scales where cross-purchase does not.
Who this coverage may be good for
- Corporations.
- Partnerships with several owners.
- Established businesses with the cash flow to carry the premiums.
What to consider before choosing it
- Legal and tax guidance is important and the structure is not interchangeable with cross-purchase.
- The business carries the premium cost, which affects everyone’s share.
- Valuation should be updated on a schedule.
Common questions
Is this simpler than cross-purchase?
Administratively, usually yes, especially past two or three owners. Tax consequences differ, and simpler is not automatically better.
Who is the beneficiary?
The business. That is what makes it an entity purchase, and it is why the tax treatment is not the same as an owner receiving the money personally.
What if the business is sold?
The policies belong to the entity and follow it. Address this in the agreement rather than discovering it during a sale.
Coverage availability, benefits, riders, and underwriting requirements vary by carrier, product, state, and individual eligibility. This page is for general educational purposes and is not a guarantee of coverage.