Two partners can build a plumbing company, 15 trucks and a good reputation over about 20 years, and still have no written plan for a death. In the example from Speaking of Insurance episode 38, one partner dies suddenly. Within a month the surviving partner has a new co-owner, the late partner's spouse, who has never run a job site, needs income now, and would like to sell. The surviving partner would like to buy that interest and does not have a million dollars sitting around. Nobody did anything wrong. They never decided in writing, with money behind it, what would happen.

Aaron Bollinger of Bollinsure Insurance Services separates two jobs that get blended. Key person insurance protects the business when it loses someone it depends on. Buy-sell funding makes sure ownership changes hands cleanly. The agreement itself is a legal document. An attorney drafts it. A life insurance policy can fund it. This page follows what that episode covers.

Key person insurance is the business's policy

Key person insurance is the policy the business owns on a person the business depends on. In the setup the episode describes, the business owns the policy, the business pays the premium, and the business is the beneficiary. The death benefit is the business's cash when it loses that person. How much to buy is a sizing question, not a single multiple.

The episode's software-firm example sizes one policy to the person. The co-founder's pay is about $200,000 a year. The $1.5 million policy is about seven times that compensation. Those figures clarify the amount spoken in the episode. They are an example from that conversation, not a multiple that fits every business.

Two tax points come up in the same stretch of the episode. Premiums the business pays are not deductible. The episode points to Section 264 for that rule. Section 101(j) calls for notice and consent before the policy is issued, and the episode names Form 8925 with that requirement. Those are filing and consent steps to handle with the company's CPA before a policy is put in force. They are not a reason to skip the coverage, and they are not something a podcast can complete for you.

Key person disability is a separate policy from the life insurance. It has an elimination period, the waiting time that policy uses before a benefit can start. The episode covers that coverage. The period is whatever the policy says, not a number this guide can fill in.

Buy-sell funding is the ownership job

A buy-sell agreement says what happens to an owner's share. Funding is the money that lets the people who are supposed to buy actually pay. The episode names three ways to hold the policies that provide that money:

  • Cross-purchase. The other owners hold the policies that fund the purchase of a deceased owner's share.
  • Entity redemption. The business holds the policy and uses the proceeds to redeem the ownership interest.
  • Trusteed cross-purchase. A trustee holds the policies. The episode clarifies that the structure discussed about six minutes in is a trusteed cross-purchase.

The plumbing partners in the episode are the funded cross-purchase example: the written agreement and the policies are there so the surviving partner is not left negotiating with a new co-owner and no cash.

Connelly v. United States, decided in June 2024, is why owners with redemption agreements are reviewing them. The episode flags the case. What it means for a particular company's estate tax is a question for that company's CPA and attorney, not a conclusion this page can hand you.

The episode also covers term coverage and permanent coverage for a business need. Term is coverage for a defined period. Permanent coverage is built to stay in force. Which one fits depends on how long the obligation lasts. The recording walks through that choice. A guide cannot pick the product from the job title alone.

How the price gets set, and why plans fail

The episode covers three ways the agreement can set the price: a fixed number, a formula, or an appraisal. It also covers who pays, including splitting the premium. The price in the agreement and the amount of the policy have to be looked at together. A number chosen years ago, with no one assigned to update it, is how a funded agreement drifts away from the business it was written for.

The failure modes the episode names are practical, not theoretical:

  • A mismatch. The agreement's price and the policy amount are not the same number.
  • The wrong owner or beneficiary. The policy pays the wrong person, or the person who is supposed to buy does not receive the money.
  • A transfer for value. The episode names a transfer for value as a way the plan fails. Check who owns the policy, and who it pays, before the policy changes hands.

Life policies also have standard exclusions. The episode reviews them so a plan is not built on the assumption that every death is paid. Read the exclusions on the policy you are actually considering. The issued policy controls, not the example in the recording.

What to bring to a review

The episode closes with four questions to ask about your own plan this quarter. Start with the recording, then bring the agreement, the policy owner, the beneficiary, and the way the price is set. Bollinsure can review the life insurance that funds the plan. Your attorney and CPA own the agreement and the tax return.

See life insurance in California, or request a commercial coverage review. You can also call 562-268-9355.

This guide is general educational information. It is not legal, tax, or coverage advice. Coverage, eligibility, and pricing depend on the carrier, underwriting, and your policy terms. CA License 6013787.

Sources and Further Reading

  • Speaking of Insurance, episode 38: key person insurance and buy-sell funding, published November 2, 2026 Pacific. The policy and the agreement control, not the episode.
  • 26 U.S.C. Section 264: the premium rule the episode points to. Accessed November 3, 2026.
  • 26 U.S.C. Section 101: Section 101(j) notice and consent, the requirement the episode names before issue. Accessed November 3, 2026.
  • IRS, About Form 8925: the form the episode names with the Section 101(j) notice and consent. Accessed November 3, 2026.
  • Connelly v. United States (U.S. Supreme Court, June 2024): the decision the episode says owners with redemption agreements are reviewing. Accessed November 3, 2026.