Buy-Sell Life Insurance Calculator

How many policies each structure needs

In a cross-purchase the owners buy the shares themselves, so each owner owns a policy on each of the others: n owners need n × (n − 1) policies. In an entity redemption (a stock redemption in a corporation, a redemption of the interest in an LLC or partnership) the company buys the shares back, so it owns one policy on each owner: n policies.

Owners	Cross-purchase	Entity redemption
2	2	2
3	6	3
4	12	4
5	20	5
6	30	6

With two owners the count is the same either way, which is why the choice between them for two owners is about tax and who pays, not paperwork. Some agreements have a trustee or escrow agent own one policy on each owner on behalf of the others, which brings a cross-purchase back to n policies; how that arrangement is taxed when an owner dies or leaves depends on how it is drafted, and is a question for the adviser who drafts it.

How the face amounts are worked out

The calculator sizes the cover to buy each owner's share at today's value of the business, before any insurance: the figure the agreement's price formula or appraisal would give. Under an entity redemption the company's policy on each owner is that owner's share of the value. Under a cross-purchase the same amount is split among the surviving owners in proportion to their own shares, so their percentages stay in the same ratio after the purchase.

Say a business is worth $3,000,000 and owned 50%, 30% and 20% by A, B and C, the calculator's starting figures. The company would hold policies of $1,500,000, $900,000 and $600,000. In a cross-purchase, A's $1,500,000 share is bought 60% by B (30 of the 50 points the others hold) and 40% by C, so B owns a $900,000 policy on A and C a $600,000 one. B's $900,000 share is bought by A and C in the ratio 50 to 20: $642,857 and $257,143. C's $600,000 is bought by A and B in the ratio 50 to 30: $375,000 and $225,000. The six policies add up to $3,000,000, the same total cover as the company's three.

A business grows, so whatever the face amounts, the agreement should say how the price is set at the time of death and what happens when the insurance falls short; how to value a partner's share covers the valuation methods, and how to finance a partner buyout the ways to pay a shortfall over time.

Why the calculator does not guess the premiums

Life insurers price cover per $1,000 of face amount, by age, sex, health class and tobacco use, and the policy's length: a 30-year term costs more than a 20-year term, and permanent cover costs many times what term does. Published averages, such as Policygenius's term life rate tables (dated October 2024 when checked), are for healthy non-smokers in a preferred class and stop at $1 million of cover. Buy-sell policies are often larger, on owners in their fifties and sixties, and any of the owners may be a smoker or have a health history, so an average would mislead more often than it helped. The calculator asks instead for the rate you are quoted for each kind of owner (men or women, a five-year age band, tobacco or not) and does the multiplication: premium = face amount ÷ 1,000 × rate. Every figure it shows is an illustration from your inputs, not a quote.

The rates are where a cross-purchase gets uneven. Each owner pays for the cover on the others, so a younger owner with a small share pays for policies on older owners with larger shares, while the older owner's policies on the younger one are cheap. Under an entity redemption the company pays, and the owners bear the cost in proportion to what they own.

What Connelly v. United States changed

Michael and Thomas Connelly owned Crown C Supply, a building supply company in St. Louis, 77.18% and 22.82%. Their agreement had the company redeem a deceased brother's shares if the survivor did not buy them, and Crown held $3.5 million of life insurance on each brother to pay for it. When Michael died in 2013, Crown used $3 million of the proceeds to redeem his shares, and the estate reported them at $3 million. The estate's valuation put Crown at $3.86 million, leaving out the insurance used for the redemption on the reasoning of Estate of Blount v. Commissioner, 428 F.3d 1338 (11th Cir. 2005): the obligation to pay the proceeds out to the estate offset them. The IRS counted them, valued Crown at $6.86 million and Michael's shares at $5.3 million, and assessed $889,914 more estate tax.

The Court, unanimous, sided with the IRS on June 6, 2024 (opinion). The Treasury regulation on valuing closely held shares counts "proceeds of life insurance policies payable to . . . the company" (26 CFR §20.2031-2(f)(2)), and a promise to redeem shares at fair market value is not a liability that cancels them, because paying an owner what the shares are worth leaves every other owner's shares worth what they were. The value that matters is at the moment of death, before the company pays anything out.

So the calculator puts the deceased owner's share two ways: share × business value, which is what the Blount reasoning gave and what a cross-purchase gives, and share × (business value + proceeds), which is Connelly. Load the Connelly case puts in the opinion's own figures and returns them: 0.7718 × $3,860,000 = $2,979,148, about the $3 million the estate reported; 0.7718 × ($3,860,000 + $3,000,000) = $5,294,548 of a $6,860,000 company, the opinion's $5.3 million. The tax line will not match the $889,914, which depended on the rest of Michael's 2013 return; the opinion does not set it out, and the calculator applies 2026's exclusion.

The last line under the Connelly figures is the cover a company would need for its redemption price to equal the value Connelly puts on the share. Because the insurance raises the value it is meant to pay, the answer is share × value ÷ (1 − share): for Crown, about $13.1 million to redeem 77.18% of a business worth $3.86 million without insurance. The Court acknowledged the point, that Crown "would have needed an insurance policy worth far more than $3 million", and answered that it was "simply a consequence of how the Connelly brothers chose to structure their agreement."

Two limits on the holding. In its footnote 2 the Court did not hold that a redemption obligation can never reduce a company's value, for instance where paying it would force the company to sell operating assets. And Crown was a corporation; whether courts apply the same reasoning to an LLC or partnership interest is not decided, though the logic does not depend on the entity being a corporation. Connelly v. United States and buy-sell life insurance takes the case and what to change in an agreement in more detail.

When it costs estate tax

Federal estate tax falls only on an estate over the basic exclusion amount, which the IRS gives as $15,000,000 for 2026, set by Public Law 119-21, signed July 4, 2025, after $13,990,000 for 2025 (IRS); it is indexed for inflation from 2027. Above it, each dollar is taxed at the top rate of 40% (26 U.S.C. §2001(c)), which is how the calculator works it out: 40% of whatever the estate, the business share plus the rest you enter, is over $15,000,000. It assumes the owner made no taxable gifts in life (they use up the same exclusion) and leaves out the marital deduction (what passes to a spouse is not taxed until the spouse dies, 26 U.S.C. §2056) and state estate taxes, some of which begin far below the federal figure. For most owners of a small business, Connelly changes the value on the return and not the tax; for an estate near or over the exclusion, the extra value is taxed at 40%.

What a cross-purchase costs instead

• More policies. Six for three owners, twelve for four, and each one to keep paid; the Court named the risk itself, that one owner may be unable to keep paying for the cover on another.
• Uneven premiums when the owners' ages or health differ, as above.
• The transfer-for-value rule when an owner leaves alive. The policies the departing owner holds on the others have to go somewhere. A life insurance policy sold for value loses its tax-free payout except on a transfer to the insured, to a partner of the insured, to a partnership in which the insured is a partner, or to a corporation in which the insured is a shareholder or officer (26 U.S.C. §101(a)(2)). Owners of an LLC taxed as a partnership are partners and fit the exception; co-shareholders of a corporation selling to each other do not.
• Each deceased owner's estate also holds the policies they owned on the others, at their value (for term cover, usually little; for permanent cover, roughly the cash value), under 26 CFR §20.2031-8.

In exchange it keeps the proceeds out of the company's value, and the survivors who buy the shares take a tax basis equal to what they paid (26 U.S.C. §1012), which lowers the gain when they sell later. When a C corporation redeems shares the surviving owners own more of it with no new basis. In an S corporation or a partnership the tax-free proceeds do raise the owners' basis (§1367, §705), so the gap is narrower there.

What the calculator leaves out

Disability: a buy-sell agreement usually also covers an owner who can no longer work, funded with disability buyout insurance, which this does not size. Income tax on company-owned policies: a policy a business owns on an owner who works in it is an employer-owned contract, and its payout is tax-free beyond the premiums paid only if the owner was given written notice and consented before the policy was issued (26 U.S.C. §101(j); the company reports such policies on IRS Form 8925). The price itself: insurance funds a price, it does not set one, and the agreement should say how the price is fixed at death and what happens to any shortfall or surplus. Buy-sell agreements for business partners goes through the agreement clause by clause, and what happens when a business partner dies covers the months after a death with or without one.

General information, not legal, tax or insurance advice, and not a quote or offer of insurance. Which structure suits a business depends on its entity, its owners' estates and the agreement's terms, and a lawyer and tax adviser in your state should read the actual agreement before it is signed.