What is buy-sell insurance primarily used for?

Buy-sell insurance is primarily utilized to ensure business continuity by funding the purchase of a deceased partner's shares. This arrangement is critical for businesses with multiple owners, as it provides a financial mechanism to smoothly transition ownership when one partner passes away. The death of a partner can create uncertainty and potential disruption in business operations; having a buy-sell policy in place ensures that the surviving partners can buy out the deceased's interest. This helps maintain stability within the company and protects both the business and the deceased partner’s heirs by facilitating a fair and predetermined value for the business shares. This arrangement can help avoid conflicts or financial strain on the remaining partners, ensuring that the business continues to operate effectively post-transition.