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Lifecycle buy-sell arrangement

Protect the value of your client's business

Buy-sell strategies can help protect the value of your client’s business in the face of unforeseen events. Traditional buy-sell strategies focus on one event — the death of a business owner. Such strategies typically employ term life insurance owned by the business or the other owners, which helps ensure funds are available to buy out the business interest of a deceased owner.

A lifecycle buy-sell arrangement, however, can provide a source of funds when your client’s business is experiencing a downturn or for transferring business ownership interest if you are disabled or leave the business. By using cash value life insurance owned by a separate partnership entity, a lifecycle buy-sell arrangement offers distinct advantages over traditional buy-sell strategies.

Why choose a lifecycle buy-sell arrangement?

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The opportunity

This strategy can 

protect the value of a business:

  • Downturn in revenue
  • Disability of an owner
  • Departure of an owner
  • Death of an owner
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Four valuable features

  • Policy values can be accessed to assist the business during revenue downturn.
  • Policy values can help cover the buyout costs triggered by a disability.
  • Policy values can help buy out a departing partner’s interest.
  • Policy death benefit can be used to fund the buyout of a deceased partner’s interests
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Target client

Businesses with the following characteristics:

  • Three or more owners
  • Organized as an S corporation, C corporation, LLC or partnership
  • More than one business entity

BOLD sales support

Contact the Securian Financial Advanced Sales Team today.

1-888-413-7860, option 3

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Advanced multiple owner buy-sell strategies

See an in-depth example of the lifecycle buy-sell strategy.

Learn about buy-sell

How it works

1. Business owners create a new business entity to own life insurance policies on each of their lives1

2. Owners contribute money each year to the new entity to pay the life insurance premiums

3. In the event of a buyout trigger, policy values or death benefits can be used to fund the buyout

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Why create a new business entity?

  • It segregates the life insurance from the other business assets for creditor protection.
  • If there are other related business entities, it creates a single buy-sell vehicle.

Why cash value life insurance?

  • Cash value life insurance policies provide permanent death benefit protection upon death of a business owner.
  • These policies can grow in value over time and provide a source of funding for other business owner life stages (downturn, disability and departure).

Lifecycle buy-sell benefits and considerations


  • Funds for business continuation in the event of business downturn, or an owner’s disability, departure or death
  • Safety from corporate and personal creditors with a separate business entity
  • Owners’ premium payments can be equalized
  • Requires only one policy per owner
  • Central policy management


  • Must set up a separate business entity resulting in additional legal fees
  • May be subject to meeting the insured’s notice, consent and income requirements of IRC Section 101(j)
  • May be a complex strategy
  • Death benefit may be included in the estate and subject to estate taxes if a partner is deemed to possess incidents of ownership

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1. Employer-owned life insurance is subject to the notice and consent rules for employer-owned life insurance – IRS Sec. 101(j). Failure to comply with those rules will subject the death benefit to taxation.

Life insurance products contain fees, such as mortality and expense charges, (which may increase over time) and may contain restrictions, such as surrender periods.

Please keep in mind that the primary reason for purchasing life insurance is the death benefit.

Additional agreements may be available. Agreements may be subject to additional costs and restrictions. Agreements may not be available in all states or may exist under a different name in various states and may not be available in combination with other agreements.

Policy loans and withdrawals may create an adverse tax result in the event of lapse or policy surrender and will reduce both the surrender value and death benefit. Withdrawals may be subject to taxation within the first fifteen years of the contract. Clients should consult their tax advisor when considering taking a policy loan or withdrawal.

The Policy Design chosen may impact the tax status of the policy. If too much premium is paid, the policy could become a modified endowment contract (MEC). Distributions from a MEC may be taxable and if the taxpayer is under the age of 59 ½ may also be subject to an additional 10% penalty tax.    

An annuity is intended to be a long-term, tax-deferred retirement vehicle. Earnings are taxable as ordinary income when distributed, and if withdrawn before age 59½, may be subject to a 10% federal tax penalty. If the annuity will fund an IRA or other tax qualified plan, the tax deferral feature offers no additional value. Qualified distributions from a Roth IRA are generally excluded from gross income, but taxes and penalties may apply to non-qualified distributions. Please consult a tax advisor for specific information. There are charges and expenses associated with annuities, such as surrender charges (deferred sales charges) for early withdrawals.

This information may contain a general discussion of the relevant federal tax laws. It is not intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. This information is provided to support the promotion or marketing of ideas that may benefit a taxpayer. Taxpayers should seek the advice of their own tax and legal advisors regarding any tax and legal issues applicable to their specific circumstances.

For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it is accessible to the general public.

DOFU 10-2022