SBA 7(a) Q&A
Short answer
Yes, life insurance is an ideal and common method to specifically fund a deceased partner's buyout by the surviving owners, as outlined in a buy-sell agreement.
Through a cross-purchase buy-sell agreement, each partner purchases a life insurance policy on the other partners. Upon the death of a partner, the surviving partners receive the tax-free death benefit and use these funds to purchase the deceased partner's ownership interest from their estate, ensuring continuity and fair value.
Three partners, each owning 33.3%. Each partner has a $1,000,000 policy on the other two. If one partner dies, the two surviving partners receive $1,000,000 each and use the combined $2,000,000 to buy out the deceased partner's $2,000,000 share.
Last reviewed 2026-06-15 · SBA sources checked through 2026-06-15. DealRoom analysis of business life-insurance and SBA collateral-insurance practice (SOP 50 10 8). Not insurance, legal, or tax advice. Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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This page answers “Can life insurance specifically fund a deceased partner's buyout by surviving owners?” for SBA 7(a) business buyers — a short answer, the detail, and official sources — from DealRoom.so SBA Intelligence. It is general information, not legal, tax, or financial advice, and DealRoom is not a lender.
Source: DealRoom.so SBA Intelligence, based on public SBA, lender, franchise, FDIC, and related records. DealRoom is not a lender and does not guarantee financing.
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