Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Two partners own a business equally and sign a buy-sell agreement funded with life insurance. The primary purpose of this arrangement is to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A buy-sell agreement funded by life insurance ensures that when an owner dies, the surviving owner (or the business) has the cash to purchase the deceased's interest. The estate receives fair value for the business interest, and control stays with the survivor — avoiding a forced sale to outsiders or disputes with heirs.
Why the other options are wrong
- B) Personal debts and funeral expenses are family needs, not the purpose of a business buy-sell.
- C) Retirement funding is an unrelated planning goal; buy-sell proceeds buy ownership, not retirement income.
- D) Employee compensation is not the function of a buy-sell arrangement between owners.
Memory hook
Buy-sell = an insurance-funded handshake: the survivor gets the company, the estate gets cash, and nobody gets stuck with a stranger as partner.