How does life insurance fund a buy-sell agreement in Nevada?

A buy-sell agreement is a legally binding contract between business co-owners that dictates what happens to an owner's interest upon death, disability, or departure. Without one, the deceased owner's share may pass to heirs who lack the skills or desire to run the business, creating conflict and instability.

Life insurance is the most common funding mechanism for buy-sell agreements. Each owner obtains a policy, and when one owner dies, the death benefit provides the surviving owners with cash to purchase the deceased's share from the estate at the pre-agreed price. This keeps the business in the hands of operators rather than heirs and provides the estate with liquid funds.

In Nevada, two primary structures exist. A cross-purchase arrangement has each owner buy a policy on the other. An entity-purchase (or redemption) arrangement has the business itself own the policies and buy the interest. Each has different tax and legal implications, so working with both an attorney and a licensed insurance professional is advisable.

The valuation method written into the agreement matters as much as the insurance itself. Fixed price, formula, or agreed appraisal methods each have trade-offs. Agents in our network can coordinate with your legal and financial advisors to help you explore policy options that align with your agreement structure.