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What Is a Buy-Sell Agreement in Life Insurance?

A buy-sell agreement (also called a buyout agreement) is a legal contract between business co-owners that outlines what happens if one of them dies, becomes disabled, retires, or wants to leave the business.

When backed by life insurance, it ensures the surviving owner(s) can buy out the deceased owner's share without financial strain.

✅ How It Works With Life Insurance:

  1. Each owner buys a life insurance policy on the other owner(s).

  2. If one owner dies, the insurance payout goes to the surviving owner(s).

  3. The survivors use the tax-free life insurance proceeds to buy the deceased’s share from their heirs or estate.

🏠 What Is Mortgage Protection Life Insurance?

Mortgage Protection Life Insurance is a type of life insurance policy designed specifically to pay off your mortgage if you pass away. It ensures that your family can keep the home without having to worry about mortgage payments.

✅ How It Works:

  • You buy a term life policy that aligns with the length of your mortgage (e.g., 15, 20, or 30 years).

  • If you die during the term, the policy pays a lump sum—usually equal to your remaining mortgage balance.

  • The benefit goes either to your lender or your beneficiary, depending on how the policy is set up.

🔍 Key Features:

FeatureMortgage ProtectionTraditional Term LifePayout Goes ToLender or beneficiaryChosen beneficiaryCoverage AmountMatches mortgage balanceFlexible (any amount)Declining BenefitYes (in many cases)No (fixed benefit)PurposePay off mortgageCovers any financial needMedical Exam Required?Often noOften yes

🚫 Things to Watch Out For:

  • Some policies have a declining death benefit (as your mortgage decreases, so does the payout).

  • It’s less flexible than regular term life insurance.

  • In some cases, the lender is the only beneficiary.

👍 Good For:

  • Homeowners who want peace of mind that their family won't lose the house.

  • People who don’t qualify easily for regular life insurance (many policies don’t require a medical exam).

👔 What Is Key Man Insurance?

Key Man Insurance (also called Key Person Insurance) is a life insurance policy a business takes out on a critical employee, owner, or executive whose loss would have a major financial impact on the company.

The business is both the policy owner and beneficiary, and it uses the death benefit to help the company recover financially if the key person dies.

✅ What Does Key Man Insurance Cover?

If the key person dies (or becomes disabled, if the policy includes that option), the business can use the insurance payout to:

  • 💵 Cover lost revenue

  • 👥 Pay for recruitment or training of a replacement

  • 🧾 Pay off debts or business loans

  • 🛡 Reassure investors, partners, or creditors

  • 🧭 Maintain operations during transition

🧠 Who Is Considered a "Key Person"?

  • Founders / Owners

  • Top Executives (CEO, CFO, etc.)

  • Sales Rainmakers

  • Specialists with unique skills or relationships

If losing someone would seriously disrupt or threaten the business, they’re likely a "key man."