Quick Guide to Life Insurance for Business Partners
- Will Grant
- Sep 17
- 10 min read
If you own a business with a partner, life insurance isn’t optional; it’s critical.
A buy-sell agreement funded by life insurance aims to ensure your family receives the true value of your ownership if something happens to you, while your partner gains full control of the business without disruption.
Because these life insurance policies can be complex, it’s important to work with an insurance specialist who understands business-owner financial planning and can structure coverage to fit your company’s needs.
In this post about life insurance for business partners, I’ll cover why you need it, how it helps, and what type of insurance to consider.
Will Grant is a Senior Wealth Manager with 360 Financial. He earned a Bachelor of Science degree in Finance from Miami University and holds his Series 7 and 63 licenses through LPL Financial and his 65 license through 360 Financial.
Table of Contents
Do Business Partners Really Need Life Insurance?
One of the first questions I have for a business owner thinking about getting business partner life insurance is, "Do you have a family?"
As an owner, you have equity in the business. Your ownership in the company isn’t just a title; it represents a dollar amount and real financial value. If something happens to you, will your family actually receive that value in cash? Or will they be left with a share of a business they can’t run?
In most cases, a spouse or children aren’t prepared or interested in managing the business, which means without a plan in place, your family’s financial security is at risk.
Life insurance tied to a buy-sell agreement ensures that your equity translates into financial support for your loved ones. If you're the main breadwinner, they're dependent on your business.
How Does Life Insurance for Business Partners Work?
The goal of life insurance for business partners is to ensure business continuity.
Each partner owns a life insurance policy on the other. If my partner passes away, I receive the insurance payout. That allows me to buy out their share of the business, so their family gets the financial value of the ownership without being forced into day-to-day management.
This creates peace of mind on both sides. The surviving business owner gains control of the company, while the family of the deceased owner is fairly compensated.
I’ve seen firsthand how powerful this is.
When my grandfather passed away unexpectedly, he left behind my grandmother (who was pregnant) and eight children. Because he and his business partner had this type of insurance, his partner was able to buy out his share, and my grandmother had the resources to raise those kids. Without that protection, the story could have looked very different.
What Risks Do You Face Without Life Insurance for Your Partners?
With any business, there’s likely financing tied to the business, employees relying on their jobs, customers who need service, and vendors who provide services to your business.
Lenders will want to know who’s responsible for the debt, employees will need payroll covered, and vendors will still expect payment. If your spouse can’t step in, what happens next?
Without life insurance and a buyout plan, you leave behind not just a business with its business expenses, but also a liability your family may struggle to cover. That liability lands on your family, who may suddenly face tough choices that often don’t end well.
Here are the biggest risks:
Outstanding debt obligations – Loans or lines of credit tied to your name can come due, creating immediate pressure.
Forced sale at a discount – Your family may have to sell your ownership stake quickly, often at far less than its true value.
Loss of income stream – Without a plan, your family loses the business’s cash flow, which they may have depended on.
Operational disruption – Employees, customers, and vendors are left in limbo, which can reduce the company’s value overnight.
Family burden – Loved ones may be pushed into running or liquidating a business they have no interest or expertise in.
Life insurance tied to a buy-sell agreement can solve these problems by turning your ownership equity into a fair cash payout. Your family's financial stability is preserved, and your business partner can keep the business running.
What Key Types of Life Insurance Apply to Business Partners?
The most common structure is called a buy-sell agreement.
There are two main versions:
Cross-purchase agreement – Each partner owns life insurance on the other(s). If one dies, the surviving partner uses the proceeds to buy out the deceased partner’s ownership, ensuring the deceased partner’s heirs receive fair value.
Entity-purchase agreement (or company-owned) – The company itself owns the life insurance policies on all owners. If a partner dies, the company pays out to their family and retires their share.
Both serve the same purpose: protecting the business and the family members involved.
The choice between them depends on the number of partners, tax considerations, and how ownership is structured. You should work with a specialist to get the right type of insurance for your business.
Joint vs Individual Life Insurance
There are two main ways business partners can structure life insurance for a buy-sell plan: joint policies or individual policies.
With individual policies, each partner owns a policy on the other, which works well for smaller businesses with just two partners. With joint policies, the business itself owns the coverage on all partners, and the payout goes to the company if one of them passes away.
Joint coverage can make more sense when there are multiple owners, while individual coverage is often simpler for two-person partnerships.
Who Should You Work with to Set This Up?
This isn’t something to handle on your own or with just any insurance agent.
Business-owner life insurance is specialized. You’ll want to work with someone who has experience setting up buy-sell agreements and policies for companies.
At 360 Financial, one of our partners is an insurance professional who works with business owners. He has experience with policies that benefit business owners and their families. This is important.
Ensure that whoever you work with understands the nuances and will ensure the policy structure aligns with your ownership arrangement.
What If Your Financial Advisor Isn’t Helping With This?
If you have a financial advisor, but they aren’t bringing up business-owner life insurance, that’s a red flag.
Protecting your ownership and your family should be part of comprehensive planning. When setting up these policies, all partners need to be at the table.
If one partner doesn’t have an advisor, they should still attend the meeting. And if your advisor isn’t guiding you through this, it might be time to find one who will.
How Much Coverage Does Each Partner Need?
The right amount of coverage depends on the value of each partner’s ownership in the business.
In simple terms, you want enough coverage to equal the dollar amount your family would need if your share of the business were sold. For example, if you own 50% of a business valued at $20 million, your coverage might be around $10 million.
The exact calculation can be more complex, especially if the business has debt, fluctuating income, or multiple owners, so it’s important to work with a qualified advisor and insurance specialist to get the right amount of coverage.
Special Note for Minnesota Business Owners
For Minnesota business owners, life insurance is especially important because your business interest is part of your taxable estate.
Minnesota’s $3 million estate tax exemption means your family could face a state tax bill even if you’re below the federal threshold. Having a buy-sell agreement funded with life insurance allows your family to receive fair value and have the liquidity to cover taxes, while your business continues without disruption.
Family businesses are often the ones most at risk if an owner passes unexpectedly, making life insurance planning especially relevant.
Work with a financial advisor and insurance specialist in Minnesota who understands both your state and the needs of business owners.
Are You Confident in Your Risk Management Strategy?
According to a survey conducted by Wakefield Research among 1,000 US business owners, only 63% of small business owners considered their risk management strategy extremely or very effective.
Meanwhile, at least 84% of larger business owners were confident in their risk management strategies.
If your small business lacks a solid risk management strategy, you may be feeling stressed or uncertain about its future. According to this study, 48% of business owners would think about increasing or getting new life insurance coverage.
This suggests that many business owners may not have sufficient coverage or are uncertain about their current risk management strategy. If you're in that boat, don't hesitate to reach out to a financial advisor who specializes in helping business owners.
You shouldn't have to deal with these big financial decisions on your own.
Common Questions
What is life insurance for a buy-sell agreement?
A buy-sell agreement is a legal arrangement that spells out what happens to a business if an owner dies. Life insurance is often used to fund that agreement, so the transition is smooth.
When one partner passes away, the insurance payout provides the surviving partner(s) with the money needed to buy out the deceased partner’s share. This way, the business keeps running without disruption, and the family of the deceased receives fair value without having to step into the business.
Can you take out life insurance on a business partner?
Yes. Business partners can take out life insurance on each other through a buy-sell agreement.
The policy provides a death benefit to buy out the deceased partner’s share, protecting both the company and the family. Consent is required, and coverage should match each partner’s ownership value.
What type of life insurance is best for business owners?
The best type is usually term life insurance used within a buy-sell agreement or key person insurance.
Term coverage provides affordable protection for a set period, while key person insurance protects against the loss of a critical owner or employee. The right choice depends on the ownership structure.
How much does a $1,000,000 life insurance policy cost per month?
For business owners, costs vary by age, health, and policy type. A healthy 40-year-old might pay $25–$60 per month for a 20-year term policy.
Permanent policies are often several hundred dollars monthly but may include a cash value component that can serve as an additional financial resource for the business. Coverage should match your ownership stake, so work with an advisor and insurance specialist for accurate planning.
Can an LLC get life insurance?
Yes. An LLC can own life insurance policies on its members or key employees. These policies are often used in buy-sell agreements or as key person insurance to protect the company from financial loss. The LLC pays the premiums and receives the benefits if the insured person dies.
What is key person life insurance?
Key person insurance, which is also called key man insurance, is a life insurance policy that the business owns on a key employee or owner.
If that person dies, the company receives the payout. This money can cover lost revenue, pay debts, or fund a replacement, helping stabilize the business during a difficult transition.
How can I tell if I need small business life insurance?
You likely need small business life insurance if your family relies on the business for income, your company has debt, or your partner couldn’t easily buy out your share.
If losing you would disrupt operations or create financial risk, insurance can provide the necessary cash flow and protection.
Final Thoughts
If you’re a business owner with a partner, you're probably wondering whether life insurance is truly necessary.
From my perspective, it often is. Your business ownership represents real financial value. If something happens to you, does your family receive that value in dollars? Most likely, they won’t want to step in and run the company, especially if it falls outside their area of expertise. Without a plan, they could be left in a very vulnerable position.
That’s why life insurance between business partners isn’t just about protecting the business—it’s about making sure your family is financially secure if you’re no longer there.
If you need help with succession planning or personal wealth management, get in touch with a 360 Financial fiduciary advisor for a free assessment.
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About the Author
William Grant
Will Grant enjoys empowering people to make informed decisions and seeing the positive impact his guidance can have on their lives.
Prior to joining 360, he spent seven years serving hundreds of clients at a boutique RIA focused on healthcare executives with equity compensation and then at a large, independent RIA. He earned a Bachelor of Science degree in Finance from Miami University and holds his Series 7 and 63 licenses through LPL Financial and his 65 license through 360 Financial.
Will lives in Minneapolis with his fiancée, Melissa. In his free time, he enjoys competing in triathlons, golfing and is an active member of the Minnesota Leadership Council for the Chick Evans Scholarship Foundation, of which he was a recipient.
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360 Financial is an independent wealth management firm with a team of specialized financial advisors and financial planners. As fiduciaries, 360 Financial’s advisors provide services to business owners, entrepreneurs, and professionals. We help investors with sudden wealth, retirement planning, tax planning, estate planning, and business financial planning.
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This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information
