Use term when the owners expect to sell the business or retire within a known window, such as 10 to 20 years; it costs far less per dollar of coverage. Use permanent coverage when owners expect to own the company until death, when the policy's cash value can help fund a retirement buyout, or when an owner's health makes future coverage uncertain. Many agreements use a blend: convertible term for most of the amount, so owners can convert part of it to permanent coverage later without new health questions.
We are licensed insurance brokers, not CPAs or attorneys. Treat the tax and legal points on this page as general education, and confirm them with your own CPA or attorney before acting.
On this page
The question to ask first
How long will this buy-sell need to be funded? A buy-sell is only needed while the owners still own the business together. If the plan is to sell to a private equity buyer or a key employee in 12 years, coverage that lasts 40 years is paying for decades you will not need. If the owners plan to run the company until they die, term coverage that expires at 70 leaves the agreement unfunded exactly when a death is most likely.
How they compare
| Term | Permanent (whole life, UL, IUL) | |
|---|---|---|
| Premium | Lowest per dollar of coverage | Several times term for the same amount |
| Lasts | 10 to 30 years | For life, if funded as designed |
| Cash value | None | Builds over time; can be borrowed or withdrawn |
| Fits | Planned sale or retirement within the term | Owners who will die owning the business; retirement buyouts |
| Risk | Coverage expires before the need ends | Underfunding (for UL and IUL), higher cost |
For a healthy 45-year-old non-smoker, $1,000,000 of 20-year term often costs in the range of a hundred dollars or so a month, while a permanent policy for the same amount can cost many times that. Exact prices depend on health, carrier and design, so compare actual quotes. The difference is why many buy-sells start with term.
Cash value and retirement buyouts
A buy-sell often has to fund more than death. When an owner retires, the others still need to buy them out, and life insurance does not pay at retirement. Permanent policies can help: in a cross-purchase, the cash value in the policy each owner holds on a retiring partner can be borrowed or withdrawn toward the purchase price, with the rest paid in installments. It is rarely enough to fund a full retirement buyout by itself, but it can make a meaningful down payment.
A blended approach many owners use
- Buy convertible term for the full buy-sell amount, with a term long enough to cover the expected ownership period.
- Convert part of it to permanent coverage as the business grows, the exit plan becomes clear, or an owner's health changes. Conversion usually requires no new health questions, which is the valuable part.
- Revisit every few years as the business value and the agreement price change.
Check the conversion terms before you buy: the deadline (often a set number of years or an age), and which permanent products the carrier allows you to convert into.
When health tips the decision
If an owner has a condition that is insurable today but could get worse, locking in permanent coverage, or term with a long conversion window, protects the agreement from that owner becoming uninsurable. That decision affects all the owners, so make it together.
The buy-sell funding calculator shows the amounts you need. Pricing them as term and permanent is a quick quote request through the form below.
Frequently asked questions
Is term life insurance enough for a buy-sell agreement?
Often yes, when the owners plan to sell or retire within a known period. Choose a term that runs past that date, and make sure it is convertible in case plans change.
Can buy-sell term insurance be converted to permanent?
Most term policies offer conversion to a permanent policy without new medical underwriting until a deadline set in the policy, such as a number of years or a certain age. Check the deadline before you buy.
Who should pay for permanent buy-sell coverage?
In a cross-purchase, each owner pays for the policies they own, often helped by bonuses from the business. In an entity redemption, the business pays. Unequal ages make permanent premiums uneven, so many groups equalize costs with bonuses.
Start your life insurance request
Tell us what the coverage is for and who it would cover. For most requests we ask for each person's date of birth and sex so Erik can prepare for the call. We do not ask health or tobacco questions in this initial request. This is a request for help, not an insurance application or a promise of coverage.
Written by Erik Moran
Erik co-owns Moran Insurance Group with Amanda Moran and handles the agency's life insurance cases, from key person and buy-sell coverage to trust-owned policies. He works alongside clients' CPAs and attorneys, who make the tax and legal calls. More about Erik.
Moran Insurance Group is a licensed insurance agency. Our brokers are not CPAs, attorneys or tax advisors, and nothing on this page is tax, legal or investment advice. Tax figures and rules reflect our understanding as of October 2026 and can change. Coverage is subject to carrier underwriting and state availability. Confirm anything tax or legal with a licensed CPA or attorney before you act on it.