Buy-Sell Agreement Life Insurance — Cross-Purchase Funding Calculator
Calculate the life insurance face amount each business co-owner needs to fund a cross-purchase buy-sell agreement. See per-owner coverage, total policies required, premium share, and step-up-in-basis advantage vs entity redemption.
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What is a cross-purchase buy-sell agreement?
A cross-purchase buy-sell agreement is a binding contract among co-owners of a closely held business that requires surviving owners to buy a deceased (or disabled, retiring) owner's share at a predetermined price or formula. Under a cross-purchase structure, each owner personally buys a life insurance policy on each other owner — the death benefit funds the share purchase, ensuring a smooth ownership transition without forcing the company to come up with cash.
The cross-purchase structure is the gold standard for 2–3 owner businesses because it provides a full basis step-up to surviving owners. When the survivors later sell the business, they pay capital gains tax only on appreciation above the purchase price (FMV at death) — not on the original cost basis. This can save hundreds of thousands in capital gains tax compared to entity redemption.
How to use this cross-purchase funding calculator
Enter the business value (use a recent appraisal or formula-driven figure), the number of co-owners, the percentage owned by each owner (use equal shares — e.g., 33.33% for 3 equal partners — or adjust for unequal splits), the average term premium per $1,000 of face per year (for healthy 45-year-old male non-smokers, ~$1.20–$1.80; older or female owners pay different rates), the future sale price multiple (estimate appreciation between now and an eventual sale), and the capital gains tax rate at that future sale.
The calculator shows the face amount each owner needs on each other owner's life, the total number of policies required (N × (N−1)), the annual premium each owner pays across all owned policies, and the estimated capital gains tax saved versus an entity redemption structure thanks to the basis step-up.
When cross-purchase wins and when entity redemption is better
Choose cross-purchase if: you have 2–3 owners, owners are similar ages and health (avoiding premium imbalance), basis step-up matters because you expect a future business sale, and owners are comfortable owning policies on each other. With 2 owners, cross-purchase requires just 2 policies; with 3 owners, 6 policies; with 4 owners, 12 policies — manageable up to about 3 owners.
Choose entity redemption if: you have 4+ owners (policy count explodes under cross-purchase), there are large age/health differences making premium fairness impossible, the company has reliable cash flow to fund premiums, or owners want to avoid personally managing multiple policies. Hybrid "wait-and-see" agreements give the option to choose at the triggering event but require careful tax structuring.
Source: naic.org Buy-Sell Agreements overview; IRC §2703 and §101(a); IRS Publication 535. Updated May 2026.