SBA 7(a) Q&A
Short answer
Life insurance is a highly effective and common mechanism for funding buy-sell agreements, providing immediate liquidity to purchase a deceased partner's ownership stake from their heirs.
A buy-sell agreement outlines how a deceased partner's share will be bought out. Funding it with life insurance ensures that the surviving partners or the business have the necessary cash to execute the agreement without depleting working capital, taking on new debt, or forcing a fire sale of assets.
Two partners in a business worth $2,000,000 each own 50%. They agree that upon one partner's death, the survivor will buy the deceased's share for $1,000,000. Each partner takes out a $1,000,000 life insurance policy on the other, ensuring that if one dies, the survivor receives the payout to buy out the deceased's 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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This page answers “What role does life insurance play in funding a buy-sell agreement for business partners?” 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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