: The buyer (e.g., the key employee) typically owns the policy on the life of the proprietor and is the named beneficiary.
An effective agreement should be drafted by legal professionals and include: Funding a Buy-Sell Agreement with Life Insurance
Unlike traditional buy-sell agreements between multiple partners, a sole proprietor agreement usually involves an external buyer:
: The buyer agrees to purchase the business from the owner's estate at a predetermined price or formula upon a "triggering event" (usually death or permanent disability).
: Life insurance is the primary funding mechanism because it provides immediate cash when needed to activate the sale. How the Funding Works
: Typically a key employee , a family member, or even a competitor.
: Premiums paid as bonuses are taxable income to the employee.