{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-distinguishes-a-cross-purchase-from-an-entity-purchase-buy-sell-agreement-regarding-l","api_url":"https://dealroom.so/api/public/questions/what-distinguishes-a-cross-purchase-from-an-entity-purchase-buy-sell-agreement-regarding-l","question":"What distinguishes a cross-purchase from an entity-purchase buy-sell agreement regarding life insurance?","topic":"Business life insurance & protection","audience":"borrower","bot_mode":"buyer","short_answer":"In a cross-purchase agreement, each owner buys and owns a policy on every other owner, whereas in an entity-purchase (or redemption) agreement, the business itself owns a policy on each owner.","rule":"For a cross-purchase, if one owner dies, the surviving owners use the death benefit from the policies they own on the deceased to buy out the estate. For an entity-purchase, the business receives the death benefit and uses it to redeem the deceased owner's shares from their estate.","example":"In a three-owner business, a cross-purchase would mean each owner holds two policies. An entity-purchase would involve the business holding three policies (one on each owner). If an owner dies, under entity-purchase, the business buys their shares, and the remaining ownership percentages automatically adjust among survivors. Under cross-purchase, the survivors directly buy the shares.","what_lenders_check":"Lenders assess the buy-sell structure to ensure it's legally sound and adequately funded. They want clarity on who owns the policies and who receives benefits to confirm the smooth transfer of ownership and business stability upon an owner's death.","required_facts":["Cross-purchase: owners buy policies","Entity-purchase: business buys policies","Different ownership structures","Impacts tax basis"],"source_families":[],"official_sources":[],"related_questions":[{"question":"What is key-person life insurance and why is it crucial for small businesses?","url":"https://dealroom.so/sba-7a/questions/what-is-key-person-life-insurance-and-why-is-it-crucial-for-small-businesses"},{"question":"Who should a business identify and insure as a key person?","url":"https://dealroom.so/sba-7a/questions/who-should-a-business-identify-and-insure-as-a-key-person"},{"question":"What is the typical amount of key-person life insurance coverage needed?","url":"https://dealroom.so/sba-7a/questions/what-is-the-typical-amount-of-key-person-life-insurance-coverage-needed"},{"question":"Who owns and is the beneficiary of a key-person life insurance policy?","url":"https://dealroom.so/sba-7a/questions/who-owns-and-is-the-beneficiary-of-a-key-person-life-insurance-policy"},{"question":"What are the tax implications of key-person life insurance premiums and benefits?","url":"https://dealroom.so/sba-7a/questions/what-are-the-tax-implications-of-key-person-life-insurance-premiums-and-benefits"},{"question":"Why would a buyer require life insurance on a seller during business acquisition?","url":"https://dealroom.so/sba-7a/questions/why-would-a-buyer-require-life-insurance-on-a-seller-during-business-acquisition"}],"related_terms":[{"term":"Buy-Sell Agreement","url":"https://dealroom.so/glossary/buy-sell-agreement"},{"term":"Life insurance","url":"https://dealroom.so/glossary/life-insurance"},{"term":"Purchase agreement","url":"https://dealroom.so/glossary/purchase-agreement"},{"term":"Business Entity","url":"https://dealroom.so/glossary/business-entity"},{"term":"Universal life insurance","url":"https://dealroom.so/glossary/universal-life-insurance"},{"term":"Life insurance requirement","url":"https://dealroom.so/glossary/life-insurance-requirement"}],"related_tools":[{"name":"Life insurance coverage estimator","url":"https://dealroom.so/seller-life-insurance#ins-estimator"},{"name":"Request insurance quotes","url":"https://dealroom.so/seller-life-insurance#ins-quote"}],"data_freshness":{"last_reviewed":"2026-06-15","sba_rule_sources_checked_through":"2026-06-15"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/what-distinguishes-a-cross-purchase-from-an-entity-purchase-buy-sell-agreement-regarding-l","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}