Buy/Sell Agreements and Life Insurance for Business Owners


A type of agreement funded by life insurance to protect your business and your family in the event that something happens to you or a business partner

What is a buy/sell agreement?
The death of a small business owner, like you, may lead to internal turmoil, customer erosion and disruption in revenue flow. A buy/sell agreement funded with Nationwide® life insurance can help prevent these problems from arising, potentially damaging your business.

There are two typical buy/sell agreement structures
Most business owners purchase one of two plans, the cross-purchase plan or the entity purchase or stock redemption plan. Here’s a closer look at each.

Cross-purchase plan – Each business owner purchases a life insurance policy on each of the other owners. When an owner dies, the surviving owners use the death benefit to purchase the deceased owner’s share of the business.
Entity purchase or stock redemption plan – In an entity redemption plan between owner-employees, each owner enters into an agreement with the business for the sale of their respective interests to the business.
As a part of this agreement, the business will purchase separate life insurance contracts on the lives of the owners. The business will pay the premiums and will be the owner and beneficiary. When an owner-employee dies, his or her share of the company will pass to the heirs of his or her estate. The business may use the proceeds from the policy to purchase the interest from the estate.

What are the business benefits of a buy/sell agreement?
A buy/sell agreement gives employers peace of mind knowing that their business is in capable hands should they no longer be able or want to manage it. It also:

Provides money to create a fair market value exchange
Promotes equitable and orderly transfer of wealth, ownership and management
May offer tax advantages
Guarantees heirs a buyer for assets they may not know how to manage
Provides heirs with cash to pay estate debt, expenses and taxes
What are the benefits for employees and shareholders?
For employees, a buy/sell agreement provides a way to purchase a business they have a vested interest in, but may not have the capital for. It also:

Assures remaining owners that the deceased’s share of the business will not pass on to someone unsuitable
Assures continuity for customers, creditors and employees
Your business is unique. So are the risks, costs and benefits of the buy/sell strategy. As with all insurance policies, this should be evaluated carefully. Guarantees are subject to the claims-paying ability of the issuing life insurance company. Neither the company nor its representatives give legal or tax advice.  Please consult your attorney or tax advisor for answers to specific questions.

For more specific information and answers to your investment questions contact your investment professional today. Don’t have one? Learn why to work with an investment professional and how to choose one.

Life insurance products are issued by Nationwide Life Insurance Company or Nationwide Life and Annuity Life Insurance Company, Columbus, Ohio.

• Not a deposit • Not FDIC or NCUSIF insured • Not guaranteed by the institution • Not insured by any federal government agency • May lose value