Unlike traditional buy-sell agreements between multiple partners, a sole proprietor agreement usually involves an external buyer:

: Life insurance is the primary funding mechanism because it provides immediate cash when needed to activate the sale. How the Funding Works

: The buyer agrees to purchase the business from the owner's estate at a predetermined price or formula upon a "triggering event" (usually death or permanent disability).

: Death benefits paid to the buyer are generally income-tax-free.

: Typically a key employee , a family member, or even a competitor.

: The buyer (e.g., the key employee) typically owns the policy on the life of the proprietor and is the named beneficiary.

Life insurance ensures the buyer has the funds to fulfill their legal obligation to purchase the business.

: The business often "bonuses" the premium payments to the employee, who then pays the insurer. Tax Considerations :