Life Insurance Guide for Business Partners (2024)

Life insurance for business partners is essential. You should take some time and establish a cross-purchase or entity redemption plan in your buy-sell agreement. It may sound strange at first, but getting a life insurance policy in a business setting will help you avoid financial hardships.

Below, learn how to purchase business life insurance and discover the right coverage for you and your partner.

You can compare life insurance quotes for business partners by entering your ZIP code into our free rate tool above.

What are the average life insurance rates for business partners?

Can you buy life insurance for someone else, like a business partner? In truth, it is almost always essential to buy life insurance for business partners. (For more information, read our “How to Buy Life Insurance: Expert Guide“).

Not only does this help you purchase the business shares from your late partner’s heirs, but it also keeps your business afloat while you regroup.

If it seems difficult to consider, think of it as protection for your business. All parties will be insured, so that if there is a sudden loss of income due to a tragic accident, no one will be left floundering in debt. Compare life insurance rates for business partners at different term lengths for a policy with a $250,000 death benefit below.

Average Monthly Life Insurance Rates for Business Partners by Term Length

How much coverage should you buy? Invest in enough to purchase your late partner’s shares and support your business during any sort of tragedy. That way you have the funds on hand to keep afloat during your time of need.

Search for the best life insurance company for business partners near you by comparing providers online.

How do you buy life insurance for a business partner?

There are two common ways to purchase life insurance when you’re a business owner, either as a cross-purchase or an entity-redemption plan.

Often, you determine details about life insurance on your business partner in your business’s buy-sell agreement.

If you don’t already have a buy-sell agreement, create one with your business partner.

Otherwise, you risk suddenly going into business with their spouse or children should your partner pass away.

A cross-purchase means each partner takes out a policy on the other person, making themselves the beneficiary. If one partner dies, the other uses the benefit to purchase the other’s shares.

This type of plan is best for small businesses with only two co-owners.

In an entity-redemption plan, the business purchases separate policies for each partner, and the company is named the beneficiary. If a partner dies, the firm uses the death benefit to buy their shares.

This type of plan is best for larger businesses establishing multiple partners’ life insurance coverages.

In both cases, you’ll need consent from your business partner as well as proof of insurable interest or financial dependence. In this case, your business is the insurable interest.

According to the U.S. Department of Health and Human Services, consent means your partner signs a written paper permitting the insurer to access their medical records. Any questions should be directed to an insurance agent, who would be able to answer them while remaining tactful.

Read more: What is insurable interest?

Case Studies: Life Insurance Guide for Business Partners

Case Study 1: John and Mark’s Cross-Purchase Plan

John and Mark are business partners who own a small consulting firm together. They have a cross-purchase plan in place, where each partner takes out a life insurance policy on the other person. The policy payout is designated to be used to buy the deceased partner’s shares from their heirs.

Recently, Mark tragically passed away, and John received the life insurance benefit from Mark’s policy. With the funds, John was able to purchase Mark’s shares from his heirs, ensuring the smooth continuation of the business. The life insurance policy played a crucial role in providing financial stability during this difficult transition.

Case Study 2: Sarah and Emily’s Entity Redemption Plan

Sarah and Emily are business partners who run a successful e-commerce business. They have an entity redemption plan in place, where the business purchases separate life insurance policies for each partner. In the event of the death of either partner, the business receives the policy payout and uses it to buy the deceased partner’s shares.

Tragically, Emily passed away unexpectedly, and the business received the life insurance benefit from her policy. The company used the funds to buy Emily’s shares, ensuring a smooth transition and providing financial security for her family. The entity redemption plan and life insurance coverage protected the business and the interests of both partners.

Case Study 3: David and Michelle’s Insufficient Coverage

David and Michelle are business partners who run a small restaurant together. Unfortunately, they did not prioritize getting sufficient life insurance coverage for themselves. Tragically, David passed away unexpectedly, leaving Michelle with the burden of managing the business and financial responsibilities on her own.

Without proper life insurance coverage, Michelle struggled to buy out David’s shares from his heirs and faced financial challenges in keeping the business afloat. This case study serves as a reminder of the importance of adequate life insurance coverage for business partners to protect the business and the interests of all parties involved.

Life Insurance for Business Partners: The Bottom Line

In most cases, business partners should invest in proper life insurance for one another as part of your buy-sell agreement. This type of life insurance is common in the field of business.

Not only does coverage from the best insurance companies keep you financially safe if a tragedy occurs, but it can also keep your business afloat.

You can secure affordable life insurance for business partners right now by entering your ZIP code into our free quote tool below.