Buy-Sell Agreement Funding Calculator
How much life insurance funds a buy-sell agreement?
This calculator sizes the coverage a buy-sell agreement needs. It takes the business value and ownership split, computes each owner's buyout value, subtracts any coverage already in place to show the funding gap, and reports how many policies a cross-purchase versus an entity-purchase structure requires. Enter the numbers below for an instant estimate.
Educational estimate only, not financial, legal, or tax advice. A real agreement needs a current valuation and professional counsel; structures carry different tax treatment. Kadence does not provide financial advice.
How the math works
Size each owner's buyout value
The buyout value is the slice of the business the surviving owners must purchase. With an equal partnership it is the business value divided by the number of owners; with an unequal split it is this owner's percentage of the total value. That figure is the coverage target on that owner's life.
Subtract existing coverage for the gap
From the buyout value the calculator subtracts life insurance already earmarked for the agreement. What remains is the funding gap: the additional coverage needed so the buyout is fully funded the day it is triggered, without the business borrowing or selling assets.
Choose a structure by policy count
A cross-purchase has each owner insure every other owner, so N owners need N times N minus one policies, which grows quickly past two or three owners. An entity-purchase has the business own one policy per owner, needing only N policies. The calculator reports both so the tradeoff is concrete.
Related terms and guides
Frequently asked questions
What is a buy-sell agreement and why fund it with life insurance?
A buy-sell agreement is a contract that sets how an owner's share of a business transfers if they die, leave, or become disabled. Funding it with life insurance means the money to buy out a deceased owner's share is available immediately, so the surviving owners keep control without draining the business or borrowing.
What is the difference between cross-purchase and entity-purchase?
In a cross-purchase, each owner buys a policy on every other owner and uses the proceeds to buy the deceased owner's share, so a business with N owners needs N times N minus one policies. In an entity-purchase, the business owns one policy on each owner and buys back the share itself, needing only N policies. This calculator sizes both.
How much coverage does each owner need?
Coverage per owner is driven by the value of the share to be bought out. In an equal partnership the buyout value is the business value divided by the number of owners; with unequal ownership it is each owner's percentage of the business value. The funding gap is that buyout value minus any life insurance already in place.
Is this calculator financial or legal advice?
No. This is an educational estimate to frame a planning conversation. A real buy-sell agreement requires a current business valuation and legal and tax counsel, and structures carry different tax treatment. Kadence does not provide financial, legal, or tax advice. Confirm any funding decision with licensed professionals.