How is the cost of buy-sell life insurance calculated for Nevada businesses?

Buy-sell life insurance cost is calculated based on two independent inputs: (1) the required coverage amount for each owner, and (2) each owner's individual life insurance premium at that coverage amount.

Step one — determine the coverage amount: the buy-sell coverage amount should equal the buyout value for each owner's interest. This is typically derived from the business valuation specified in the buy-sell agreement — which itself should be updated periodically to reflect current business value. A business valued at $2,000,000 with two equal partners would require $1,000,000 in coverage on each partner.

Step two — determine each owner's premium: each owner's premium depends on their individual age and health. A 40-year-old in excellent health will have a much lower premium for the same coverage than a 60-year-old with managed health conditions.

Step three — choose between entity purchase and cross-purchase: in an entity purchase, the company pays the premiums. In a cross-purchase, each owner pays premiums on policies insuring the others. The economic cost is similar, but the tax treatment differs — a tax advisor can recommend the right structure.

Total annual cost: for a two-owner Nevada business, the total annual premium is the sum of both policies. For larger partnerships, the total premium grows with the number of owners and each owner's individual risk profile.

Business valuations and buy-sell agreements should be reviewed with a Nevada business attorney. Agents in our network can provide premium estimates from A-rated (A.M. Best) carriers. Actual premiums vary.