If a co-owner dies or becomes disabled, a buy-sell agreement ensures the company—and the family—aren’t forced into a fire sale. Funding that agreement with life insurance gives San Antonio businesses the cash to transfer ownership smoothly, protect jobs, and keep clients confident.
Start here: San Antonio Life Insurance or Business Insurance.
What Is a Buy-Sell Agreement?
A buy-sell is a legally binding contract that sets who buys, at what price, and with what money when an owner dies, becomes disabled, retires, or exits. Common structures:
- Cross-purchase: Each owner owns a policy on the others.
- Entity redemption (stock redemption): The business owns the policies and buys back the departing owner’s shares.
Work with your attorney and CPA; this article is educational, not legal or tax advice.
Cross-Purchase vs. Entity: Which Fits?
Cross-Purchase (Owner-to-Owner)
Pros: Potential basis step-up for remaining owners; clean ownership transfer.
Cons: Many policies to manage with 3+ owners; premium imbalances if ages differ.
Entity Redemption (Company Buys Back Shares)
Pros: Fewer policies; easier admin for multiple owners.
Cons: May not provide a basis step-up for remaining owners; creditor exposure if not structured well.
Not sure which route makes sense? Book a consult on our San Antonio Life Insurance page and we’ll coordinate with your attorney.
How Much Coverage Do We Need?
Use a simple sizing framework and refine with your advisors:
- Your share of business value (based on a mutually agreed valuation method)
- Business debt tied to ownership (personal guarantees, SBA loans)
- Transition costs (recruiting, interim leadership, buyout fees)
Quick example: Two 50/50 owners value the business at $2.5M with $500k debt. Each carries ~$1.25M for equity + $250k for debt coverage = $1.5M (rounded) per owner.
Term Laddering: Cost-Smart Funding That Matches Risk
Term laddering staggers multiple term policies with different amounts and durations to mirror real-world risk that declines over time (loan payoff, succession, retained earnings).
Sample ladder for a SA contractor (Owner A, age 42):
- $1,000,000 — 10-year term (covers near-term debt + startup risk)
- $500,000 — 20-year term (covers longer runway to full succession)
- Optional: $250,000 — 30-year term (backstop for family/estate)
Why it works: You buy more coverage when risk is highest, then let layers drop as the business strengthens—often lowering total premium vs. one large long-term policy.
Explore options on San Antonio Life Insurance, then compare with a personal protection plan via Term Life Insurance.
H2 — Don’t Confuse Buy-Sell Funding with Key Person Insurance
- Buy-sell coverage funds the ownership transfer.
- Key person insurance replaces business income if a rainmaker dies, helping pay for recruiting and stabilize operations. Many San Antonio firms need both.
Policy Ownership & Beneficiaries (Avoid Easy Mistakes)
- Cross-purchase: Each owner is owner/beneficiary of a policy on the other(s).
- Entity: The company owns and is beneficiary; the agreement governs redemption.
- Check premium payer, transfer for value issues, and community-property considerations with your CPA/attorney.
Common Pitfalls We See
- Outdated valuations (no formula or appraisal clause)
- No disability buy-out rider/plan
- Policies lapse after a banking change
- Owner changes (buy-ins/buy-outs) without updating amounts/beneficiaries
- Mismatched coverage (e.g., company debt grows, policy stays flat)
San Antonio Implementation Checklist
- Align advisors: attorney + CPA + insurance pro
- Choose structure: cross-purchase vs. entity
- Set valuation method: formula or appraisal
- Size coverage: equity + debt + transition costs
- Build ladder: 10/20/30-year terms to match risk curve
- Review annually: revenue, debt, owners, and valuation
Ready to price a laddered plan? Visit San Antonio Life Insurance or request a quote through Contact.
Buy-Sell Funding FAQs
Is term or permanent better for buy-sell funding?
Most small businesses use term for affordability and to match finite risks. Some add permanent layers for estate/succession needs—ask your CPA.
What if we add a new partner?
Amend the agreement and adjust policies/beneficiaries—don’t wait for renewal.
Can we combine buy-sell and key person?
Yes, but keep separate policies so proceeds go to the right place with the right tax treatment (confirm with your CPA).
Talk to a San Antonio Advisor
Protect your company and your family with a buy-sell funded the smart way. Get quotes, compare structures, and build a term ladder that fits your budget on our San Antonio Life Insurance page—or explore broader protections on Business Insurance.
