Key Person Insurance vs. Buy-Sell Funding: Understanding the Difference
Key person insurance and buy-sell funding both involve life insurance and business planning, but they address different risks.
Key person insurance is generally connected to the financial impact of losing an important employee, owner, or leader. The business may need funds to manage lost revenue, recruitment, transition costs, or other effects of that person’s death.
Buy-sell funding serves a different purpose. It is designed to help support the purchase or transfer of an ownership interest when a specified event occurs, such as an owner’s death, depending on the agreement.
A business may need one, the other, or both. The correct approach depends on the company’s ownership, key roles, agreements, and goals.
Because business agreements and ownership arrangements involve legal and tax issues, this is not legal or tax advice. Consult a competent attorney and a competent tax professional before creating or changing a business arrangement.
Understanding the difference can help business owners ask better planning questions.
Schedule a call with us to discuss which business protection risks your life insurance plan should address.
Download our free Key Person vs. Buy-Sell Planning Guide to help compare these two strategies.
