SBA 7(a) Q&A
Short answer
Life insurance funds buy-sell agreements by providing immediate cash to the surviving owners or the business to purchase the deceased owner's share from their estate.
A buy-sell agreement dictates how an owner's share will be handled upon their death, disability, or retirement. When funded by life insurance, policies are purchased on each owner. Upon an owner's death, the death benefit provides the necessary liquidity to execute the agreement, ensuring a smooth transfer of ownership and preventing unwanted heirs from becoming business partners.
Two partners have a buy-sell agreement. Each takes out a $1,000,000 policy on the other. If Partner A dies, Partner B receives $1,000,000 from the policy and uses it to buy Partner A's shares from their estate.
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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