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What does it cost to actually fund a buyout?
Most multi-member LLCs have a buyout obligation written into the operating agreement with no insurance funding it. Buy-sell life insurance turns a six- or seven-figure obligation into a tax-free check that arrives at the moment it’s needed. Plug in your numbers to see the rough premium.
Your situation
All values are planning estimates — not a quote.
$1,500,000
42 years old
Estimate
Rough planning numbers based on industry-typical rates. Real quotes vary with carrier, health history, occupation, and policy features.
Death benefit per partner
$750,000
Each partner’s share of business value — what the buyout would cost.
Per-partner premium
$57/mo
≈ $684/year per partner
Total annual premium
$1,368/yr
2 policies · < 0.1% of business value
Structure note
Cross-purchase: each partner owns a policy on each other partner. The surviving partner uses the death benefit to buy out the deceased partner's interest from the estate, and gets a stepped-up basis in the purchased interest. Cleaner tax treatment, but the policy count grows quickly with more partners.
Tax treatment
- Premiums are not deductible by the business.
- Death benefit is received income-tax-free by the beneficiary.
- The non-deductibility of premiums is the trade-off for a tax-free benefit at exactly the moment a six- or seven-figure obligation needs to be settled.
Next step
Buy-sell funding only works if the operating agreement defines the buyout it’s funding.
Most multi-member LLCs have an operating agreement that specifies thata buyout happens, but not the valuation method, payment terms, or triggering events. The 5-question operating-agreement checklist surfaces what’s missing; the insurance content covers how to fund what’s defined.
Also read
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