How do buy-sell agreements use life insurance in Nevada businesses?

A buy-sell agreement is a legally binding contract between business co-owners that governs what happens when an owner dies, becomes disabled, or exits the business. Life insurance is the most common and efficient funding vehicle for buy-sell agreements, providing immediate liquidity when needed most.

There are two primary structures: cross-purchase agreements (each owner buys a policy on the other owners, and uses proceeds to buy the deceased owner's share) and entity-purchase agreements (the business owns policies on all owners and uses proceeds to buy back the deceased owner's interest). Each has different tax and cost basis implications.

The death benefit provides immediate funds for the surviving owners to purchase the deceased owner's interest, providing the estate with fair market value cash while maintaining business continuity. Without this funding, surviving owners might need to take on debt, bring in outside investors, or sell assets to finance the buyout—all disrupting operations.

Nevada business owners should work with a business attorney to draft the agreement and a licensed insurance agent to structure appropriate coverage amounts. Business values should be reviewed and updated every 3-5 years to ensure coverage remains adequate. Many professionals consider properly funded buy-sell agreements essential for any multi-owner business.