What type of life insurance is taken out to buy out a deceased partner's spouse or family?

Buy-sell life insurance is specifically designed to address the financial needs that arise when a business partner passes away. This type of insurance provides the necessary funds for the surviving partners to buy out the deceased partner's interest in the business from their estate or family. In essence, it ensures that the deceased partner’s family is compensated fairly, while allowing the business to continue operating without disruption.

The key function of this type of policy is to establish a prearranged agreement between business partners, which outlines how the death benefit will be utilized to facilitate the buyout. It effectively protects the business from potential conflicts regarding ownership and provides financial security for the deceased partner's beneficiaries.

Whole life insurance, term life insurance, and universal life insurance, while valuable in their own right, do not specifically cater to the needs associated with funding a buy-sell agreement. Whole life offers lifelong coverage with a cash value component, term life provides only temporary coverage for a specified period, and universal life includes flexible premiums and death benefits. However, none of these directly relate to the structured buyout of a partner's stake in a business.