Common Contracts

Employer-Owned Life Insurance Contracts: When and How To Use Them

April 7th, 2023

• Filed
  April 7th, 2023

In almost every shareholder, partnership or operating agreement, there are provisions for the interest of a deceased principal to be purchased by the entity, the other principals or some hybrid of both. Whether the arrangement is a cross-purchase, redemption or hybrid agreement, life insurance contracts are often used to fund the consideration due upon the death of a principal. To effectively use life insurance as a source of the consideration, the parties anticipate that the life insurance proceeds will be excluded from income tax.