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How to Use RMDs to Fund Life Insurance: Getting the Case Underwritten

Advisor and client reviewing an advanced markets estate planning strategy in a private office

Many retirees must take required minimum distributions they don’t actually need. Redirecting that money into life insurance can turn a taxable distribution into a larger, income-tax-free legacy for heirs. The concept is simple; the hard part is financial justification, and that’s where carrier choice matters.

Key takeaways

  • Using unneeded RMDs to pay life insurance premiums can leverage a taxable IRA distribution into a larger income-tax-free death benefit.
  • Because retirees usually have no earned income, carriers justify coverage with net worth formulas instead of income multiples.
  • Owning the policy in a trust can avoid probate, control distributions and add creditor protection even when there’s no estate tax concern.

Use the money the client must take but doesn’t need, and leverage it into a death benefit for the next generation.

Why the RMD-to-life concept resonates

Required minimum distributions generally begin at age 73. For clients whose pensions, Social Security and other assets already cover their living expenses, RMDs are often just a tax bill. Redirecting the after-tax amount to life insurance premiums can create a death benefit that is typically much larger than the RMDs used to fund it and passes to beneficiaries income-tax-free.

The idea has gained strength since the SECURE Act. Most non-spouse IRA heirs must now empty an inherited IRA within 10 years, which can push distributions into higher tax brackets. For more on that shift, see our article on IRAs and the SECURE Act.

The underwriting challenge: financial justification

A client in their 70s seldom has earned income, so coverage can’t be justified as income replacement. Often there’s no federal or state estate tax exposure either. That leaves underwriters asking why the coverage is needed and how much makes sense.

Carriers that are comfortable with this concept usually look at two things:

  1. Premium as a share of income. What percentage of the client’s annual income is going to premiums? A higher share may be acceptable when the file clearly shows living expenses are covered by what remains.
  2. Face amount formula. The death benefit is typically limited by a formula tied to assets. A common example: permissible coverage equals 50% of net worth attributable to investment assets, plus the fair market value of the residence, minus coverage already in force.

Formulas differ by carrier, which is why placing the case with the right carrier matters. Our guide to financial underwriting covers more of what underwriters look for.

Don’t overlook trust ownership

Because many of these policies are bought when no estate tax is expected, clients often skip trust ownership. That can be a missed opportunity:

  • A living trust keeps proceeds out of probate and allows distributions on a schedule that a simple beneficiary designation can’t provide.
  • An irrevocable trust can also protect the proceeds from creditors and keep them out of the taxable estate.

Encourage clients to review ownership with their attorney before the policy is issued.

How SRS can help

We know which carriers are comfortable with the RMD-to-life-premium concept and how they size coverage for retirees. Send us the client’s age, health overview, assets and RMD amount, and we’ll help you design the case and position it for underwriting. We also have marketing material to help you introduce the idea to clients.

Frequently asked questions

At what age do RMDs start?

For most people, required minimum distributions generally begin at age 73. Clients should confirm their own start date with their tax advisor.

How much life insurance can a retiree with no earned income buy?

Carriers usually use an asset-based formula rather than an income multiple. One common example is 50% of investment-related net worth plus the home’s value, minus existing coverage. Each carrier sets its own limits.

Is the death benefit taxable to heirs?

Life insurance death benefits are generally received income-tax-free by beneficiaries. Estate tax treatment depends on who owns the policy, which is one reason trust ownership is worth discussing.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-26

Tim Fuller, President of SRS Inc.

Tim Fuller

President, SRS Inc.

Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.

Connect on LinkedIn →

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Indexed Universal Life Features: Guarantees, Crediting Strategies and LTC Riders

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When markets are volatile, advisors look for life insurance that offers growth potential without direct market risk. Indexed universal life (IUL) combines a death benefit with index-linked interest credits and a floor that protects against losses. Here’s a practical look at the features that separate one IUL design from another.

Key takeaways

  • IUL credits interest based on index performance, subject to a cap, with a floor that protects cash value from market losses.
  • Some designs blend several indexes or use participation rates above 100%, so crediting details matter when comparing products.
  • Death benefit guarantees and optional long-term care riders make IUL a flexible fit for clients roughly 35 to 55.

The cap lets clients capture more interest in up markets, while the floor protects them when markets decline.

How IUL crediting works

An IUL is a fixed life insurance product. It does not invest directly in the stock market. Instead, interest is credited based on the movement of one or more market indexes, within limits:

  • Cap rate: the maximum interest the policy can be credited in a period.
  • Floor: the minimum credit, often 0%, so a down year doesn’t reduce cash value through negative returns.
  • Participation rate: the share of index gain used in the calculation. Some carriers offer rates above 100%, subject to the cap.

Caps and participation rates vary by carrier and can change over time, so always illustrate with current rates.

Blended and averaging strategies

Some IUL products use crediting strategies designed to smooth volatility. One carrier’s design, for example, blends the S&P 500, the NASDAQ-100 and the Dow Jones Industrial Average, weighting the best-performing index most heavily, and uses monthly averaging to help protect credits during choppy markets.

These strategies can help clients who value steadier results. The trade-off is usually a lower cap or a different participation structure, so compare them side by side.

Guarantees, underwriting and riders

Beyond crediting, look at the features that affect the whole planning picture:

  • Death benefit guarantees. Some policies offer a base no-lapse guarantee for a set period (for example, 20 years, often shorter for older issue ages) with an optional rider to extend it.
  • Underwriting options. Some carriers offer simplified or guaranteed issue for corporate-owned or corporate-sponsored cases.
  • Long-term care riders. Many IULs offer an LTC rider for an added cost. Names, terms and state availability vary. See our overview of the long-term care rider for how these work.

Which clients IUL fits best

IUL is often a good fit for clients who:

  • Want life insurance with guarantees plus growth potential
  • Prefer steadier accumulation during volatile markets
  • Need flexible death benefit options
  • Want to plan for possible long-term care costs
  • Are roughly 35 to 55 years old, with time for cash value to build

Contact us for help comparing carriers or designing an IUL case.

Frequently asked questions

Is indexed universal life a stock market investment?

No. IUL is a fixed life insurance product. Interest credits are based on index performance, but the policy does not directly participate in any stock or equity investment.

What is a participation rate in IUL?

It is the percentage of the index gain used to calculate the interest credit. A 140% rate, offered by some carriers, would credit 140% of the index return, still subject to the cap.

Can I add long-term care benefits to an IUL?

Many carriers offer an LTC or chronic illness rider for an additional cost. Terms, names and availability vary by carrier and state.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-26

Tim Fuller, President of SRS Inc.

Tim Fuller

President, SRS Inc.

Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.

Connect on LinkedIn →

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Improving a Substandard Rating: Table D to Table B After Heart Valve Replacement

Underwriter reviewing medical and financial data with a client during risk assessment

A table rating isn’t always final. Carriers with crediting programs can improve substandard offers when the rest of the client’s profile is strong.

Key takeaways

  • Crediting programs can apply to substandard (table-rated) cases, not just Preferred classes.
  • A 31-year-old with a prior aortic valve replacement had excellent cholesterol, build, and blood pressure.
  • His rating improved from Table D to Table B, a significant premium reduction.

Initial assessment: Table D. With credits for favorable cholesterol, build, and blood pressure: Table B.

The case

  • 31-year-old male, non-tobacco, seeking universal life
  • Bicuspid aortic valve, replaced 12 years earlier
  • Cholesterol 139, ratio 4.0
  • 6’6”, 222 lbs (BMI 25.7)
  • Blood pressure 117/70

The result

The initial assessment was Table D. Applying the carrier’s crediting program for his favorable risk factors improved the offer to Table B.

Other ways to improve a rating

Frequently asked questions

Can a table rating be reduced?

Yes. Some carriers apply credits or table-reduction programs, and ratings can sometimes be reconsidered after issue.

Can you get life insurance after heart valve replacement?

Yes. Many clients qualify, often with a table rating that depends on the valve type, heart function, and time since surgery.

What is Table D in life insurance?

A substandard rating typically about 100% above standard premium, depending on the carrier’s table scale.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-25

Tim Fuller, President of SRS Inc.

Tim Fuller

President, SRS Inc.

Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.

Connect on LinkedIn →

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Home Health Care Costs and How Long-Term Care Policies Pay for Them

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Health care providers increasingly recognize what the long-term care industry has long known: helping people receive care at home is what they prefer, and it can cost less than facility care. But home care isn’t cheap.

Key takeaways

  • In 2025, in-home care cost a national median of $35 an hour, about $80,000 a year at 44 hours a week.
  • Around-the-clock home care can cost more than a nursing facility.
  • Modern LTC policies pay for home care plus care coordination, respite, homemaker services, caregiver training, and more.

Part-time home care is often more affordable than a facility. Round-the-clock home care can cost far more.

What home care costs

According to the CareScout 2025 Cost of Care Survey, the national median for in-home care was $35 an hour, or about $80,080 a year at 44 hours a week. Costs vary widely by location. Full-time or 24-hour care can exceed the roughly $129,600 annual median for a private nursing home room. See all 2025 cost figures.

Why home care is growing

Home-based care is widely seen as more humane and, for many needs, more affordable than institutional care. Most clients prefer it, and families feel more connected to the care.

How LTC policies pay

  • Home health aides and personal care
  • Care coordination services
  • Respite care so family caregivers can take a break
  • Homemaker services
  • Caregiver training
  • Funds for home modifications, medical alert systems, and durable medical equipment

These built-in benefits give families peace of mind, especially high-net-worth clients who want control over their care.

Frequently asked questions

How much does in-home care cost per hour?

The 2025 national median was $35 an hour, according to CareScout.

Is home care cheaper than a nursing home?

Part-time home care usually is. Full-time or 24-hour home care can cost more than a nursing home.

Does LTC insurance cover respite care?

Many policies include respite care benefits to give family caregivers a break.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-25

Tim Fuller, President of SRS Inc.

Tim Fuller

President, SRS Inc.

Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.

Connect on LinkedIn →

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Case Study: $10 Million Permanent Total Disability Coverage for an NFL Running Back

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A second-round NFL running back, three strong seasons in, was approaching free agency and the biggest contract of his career. One serious injury before signing could have wiped it out.

Key takeaways

  • Players nearing free agency have the most future income at risk.
  • His coverage increased from $5 million to $10 million of permanent total disability protection at renewal.
  • The premium was about $90,000 plus taxes and fees.

From $5 million to $10 million of protection, so a career-ending injury wouldn’t erase his next contract.

The situation

Drafted in the second round, the player had completed three successful seasons and was heading into free agency. A permanent total disability before signing a new deal would have cost him the contract he’d earned.

The solution

His first policy provided $5 million of permanent total disability coverage. After another standout season, his advisor requested an increase at renewal. Working with his agent and advisor, we placed a $10 million permanent total disability policy.

The result

The benefit, generally received tax-free when premiums are paid personally, gave him peace of mind that his future contract and lifestyle were protected. The premium was roughly $90,000 plus taxes and fees.

Beyond pro athletes

Star athletes need specialized coverage, but many high earners have similar gaps. See income protection for high earners and a draft prospect case.

Frequently asked questions

Do NFL players buy their own disability insurance?

Many do, especially before free agency or a new contract, to protect future earnings beyond league-provided benefits.

How much disability coverage can a pro athlete buy?

It depends on projected earnings. Specialty markets can place $10 million or more.

Is permanent total disability insurance taxable?

Benefits are generally tax-free when the insured pays the premiums personally.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-25

Tim Fuller, President of SRS Inc.

Tim Fuller

President, SRS Inc.

Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.

Connect on LinkedIn →

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Income Replacement Multiples: How Carriers Decide How Much Life Insurance a Client Can Buy

Underwriter reviewing medical and financial data with a client during risk assessment

Clients often underestimate how much life insurance they can buy. Carriers’ own financial underwriting guidelines usually allow far more coverage than clients assume, and they’re a useful tool for showing what survivors would really need.

Key takeaways

  • Carriers use a multiple of annual earned income, based on age, to set the maximum coverage for income replacement.
  • Multiples fall with age: a conservative carrier might allow 20–25x in a client’s 20s and 2–5x over age 65.
  • Non-working spouses can usually get at least half the coverage of the working spouse.

Even a conservative carrier may allow 15–20 times annual income for a client in their 30s.

Why carriers limit coverage

Financial underwriting exists to prevent over-insurance, not to grow the sale. Carriers standardize what they consider a reasonable amount of coverage based on the applicant’s situation. For income replacement, the most common need, that starts with a multiple of current annual compensation.

Income multiples by age (conservative example)

  • 20–29: 20–25x
  • 30–39: 15–20x
  • 40–49: 12–15x
  • 50–54: 10–12x
  • 55–59: 8–10x
  • 60–65: 5–8x
  • Over 65: 2–5x

Multiples decrease with age because fewer income-earning years remain. They vary by carrier, and many are more generous than these.

What income counts

Carriers generally use pre-tax earned income, which works in the client’s favor because the death benefit is usually paid income-tax-free. Unearned income typically isn’t counted unless the insured’s death would directly affect it. Non-working spouses can usually be covered for at least half the working spouse’s amount. For business owners, see how coverage above normal limits can be justified in a sweat equity case.

Using the multiples in a client conversation

Showing a client the carrier’s own maximum helps them see how large a pool of money their family would need. For young, healthy clients, competitive term pricing makes adequate coverage affordable even at high multiples. Call us with any financial underwriting question before you quote.

Frequently asked questions

How much life insurance can I get based on income?

Carriers typically allow a multiple of annual earned income that depends on age, from roughly 20–25 times income in your 20s down to 2–5 times over 65, though limits vary by carrier.

Can a stay-at-home spouse get life insurance?

Yes. Non-working spouses can usually be covered for at least half the working spouse’s coverage amount.

Do carriers use gross or net income?

Usually gross (pre-tax) earned income, which works in the client’s favor since death benefits are generally income-tax-free.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-25

Tim Fuller, President of SRS Inc.

Tim Fuller

President, SRS Inc.

Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.

Connect on LinkedIn →

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Business Insurance Needs Checklist for Small Business Owners

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Small business owners often have their largest asset tied up in a company that has no plan for death, disability or retirement. You don’t need years of training to help. This checklist covers the six core needs to review with every business owner client.

Key takeaways

  • Most business owners have six core needs: retirement income, exit planning, income protection, business protection, wealth transfer and survivor income.
  • A business valuation and a review of the existing buy-sell agreement often reveal the biggest gaps.
  • SRS can provide business case support so you can start these conversations without being an expert.

Helping clients see the real value of their business is often what uncovers the planning gap.

The six core needs checklist

Use these six areas as a checklist in your next business owner review:

  1. Retirement income. Is the owner saving outside the business, or is the business the retirement plan?
  2. Exit planning. Who will buy the business, at what price, and how will the purchase be funded?
  3. Income protection. What happens to the owner’s income, and the business, if the owner becomes disabled?
  4. Business protection. Is there key person coverage on the people who drive revenue?
  5. Wealth transfer. How will the business and other assets pass to the next generation?
  6. Survivor income. Will the family have income if the owner dies before the business is sold?

Start with the value of the business

Many owners have never had a formal estimate of what their business is worth. Without one, it is hard to size a buy-sell, key person coverage or an estate plan. A business valuation gives the owner perspective and usually starts the planning conversation on its own.

Review the buy-sell agreement

If a buy-sell agreement exists, check that it is funded, that the price or formula is current and that the ownership structure still makes sense. Many agreements were signed years ago and never updated as the business grew. Our article on cross-purchase buy-sell agreements covers common structures.

How SRS supports business cases

Our team works with you before, during and after the sale. We can help you:

  • Decide which business owners to approach and how
  • Build a simple marketing campaign
  • Help clients estimate the value of their business and review buy-sell agreements
  • Explain the findings and create an action plan

Contact us to talk through a business owner client.

Frequently asked questions

What insurance does a small business owner need?

Common needs include key person life insurance, buy-sell funding, disability income and business overhead expense coverage, and personal life insurance for survivor income. The right mix depends on the business and the owner’s goals.

Why does a business valuation matter for insurance planning?

The value of the business drives how much buy-sell funding, key person coverage and estate planning the owner needs. Without a current value, coverage is often too low.

How often should a buy-sell agreement be reviewed?

A good rule is to review it every few years and after any major change in value, ownership or tax law, so the price and funding stay current.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-26

Tim Fuller, President of SRS Inc.

Tim Fuller

President, SRS Inc.

Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.

Connect on LinkedIn →

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The A-B-C’s of a Long-Term Care Cash Benefit

Adult daughter and her aging mother sharing a warm moment while discussing long-term care planning

Everyone understands what cash can do. That’s why a long-term care policy with a built-in cash benefit is one of the easiest features to explain, and a simple A-B-C framework helps clients see its value.

Key takeaways

  • A is for Assets: a cash benefit helps clients avoid liquidating investments or property to pay for care.
  • B is for Burden: cash can pay for help that keeps adult children from carrying the load alone.
  • C is for Choices: cash can be used however it’s needed, from home care to a plane ticket for a child who comes to help.

With a cash benefit, the money goes where it’s needed most: a caregiver, meal delivery, housekeeping, or a flight home for a daughter who helps.

A is for Assets

When care is first needed, many people worry about paying for it without selling stocks, cashing in CDs, or selling property, sometimes at the wrong time. A cash benefit provides money without touching those assets.

B is for Burden

Families usually step in when a loved one needs care, but adult children have their own jobs and families. Most clients’ biggest fear is becoming a burden. Cash can pay for help that lightens the family’s load. See why family shouldn’t be the long-term care plan.

C is for Choices

A cash benefit can be used however it’s needed: home care, housekeeping, meal delivery, transportation, or a plane ticket so a child can help. It can also help pay a family caregiver, which many reimbursement policies don’t allow; see caregiver contracts and LTC insurance.

Features to look for

Cash benefit designs vary. One of our carriers makes cash available from the first day of benefit eligibility, with no additional waiting period, and lets the insured switch to a traditional reimbursement benefit later if they need a higher level of care. Our LTC team can compare cash, indemnity, and reimbursement options for your client.

Frequently asked questions

What is a cash benefit in long-term care insurance?

A benefit paid in cash once the insured qualifies for care, which can be used for any purpose, rather than reimbursing specific care expenses.

What’s the difference between cash and reimbursement LTC benefits?

Reimbursement pays for documented care expenses from qualified providers. Cash pays a set amount the insured can use however they choose.

Can a cash benefit pay a family caregiver?

Yes. Because the insured controls the cash, it can be used to pay a family member for care.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-25

Tim Fuller, President of SRS Inc.

Tim Fuller

President, SRS Inc.

Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.

Connect on LinkedIn →

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Structuring a Disability Buy-Out Policy: Elimination Periods, Benefits, and Cost

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Buy-sell agreements almost always address death and retirement. Far fewer address what happens if a partner becomes too sick or injured to work. Here’s how disability buy-out coverage is structured, and why it’s often more affordable than owners expect.

Key takeaways

  • Based on industry disability tables, three partners averaging age 37 have about a 78% chance that at least one becomes disabled before retirement.
  • A disability buy-out policy typically uses a 12- to 24-month elimination period and pays a lump sum, installments, or both.
  • In one example, covering all three partners of a $1.5 million CPA firm cost less than $500 a month.

Three partners, average age 37: roughly a 78% chance at least one becomes disabled before retirement.

Why partners need it

Partners depend on each other. If one can no longer function as an owner, the others need a way to buy out their interest, and the disabled partner needs to be paid fairly. Based on the Commissioner’s Individual Disability Table A (equally weighted, all occupation classes, unisex), three partners averaging age 37 have about a 78% chance that at least one becomes disabled before retirement. More on adding disability to buy-sell planning.

Key design decisions

  • Benefit amount: tied to the disabled owner’s share of the agreed business value, with options to increase as the business grows.
  • Elimination period: usually 12, 18, or 24 months, long enough to confirm the disability is lasting and to match the buy-sell’s trigger.
  • Payout: lump sum, monthly installments, or a down payment plus installments.
  • Ownership: cross-purchase (owners own policies on each other) or entity-owned, matching the buy-sell structure.

Cost example

For a three-partner CPA firm with an average age of 35 and a $1.5 million valuation, one carrier’s plan covered all three partners for less than $500 a month, with premiums guaranteed to retirement age. Costs vary by ages, occupation, and design.

Next steps

Review clients’ existing buy-sell agreements to see whether disability is addressed, and make sure the agreement’s definition of disability matches the policy.

Frequently asked questions

How likely is a business partner to become disabled?

For three partners averaging age 37, industry tables suggest about a 78% chance at least one becomes disabled before retirement.

What elimination period is used for disability buy-out insurance?

Typically 12 to 24 months.

Is disability buy-out insurance expensive?

Often less than expected. In one example, three CPA partners were covered for under $500 a month combined.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-25

Tim Fuller, President of SRS Inc.

Tim Fuller

President, SRS Inc.

Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.

Connect on LinkedIn →

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Buy-Sell Funding: Cross-Purchase vs. Entity Redemption After Connelly

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How a buy-sell agreement is structured matters as much as whether it’s funded. The Supreme Court’s 2024 decision in Connelly v. United States made the choice between cross-purchase and entity redemption more important for many business owners. Here’s how the two compare, and why informal shortcuts cause trouble.

Key takeaways

  • In a cross-purchase, owners buy policies on each other; in an entity redemption, the business owns the policies and buys back the shares.
  • After Connelly (2024), life insurance proceeds held by a corporation to redeem shares can increase the company’s value for estate tax purposes.
  • Joint policy ownership without a written agreement gets money to the survivors but leaves price, obligation and tax questions unresolved.

Buy-sell plans built only on joint policy ownership assure one thing: the money gets to the buyers. After that, it’s all up for grabs.

Cross-purchase vs. entity redemption

Cross-purchase: Each owner owns and is beneficiary of a policy on the other owners. At a death, the survivors receive the proceeds and buy the deceased owner’s interest. Survivors generally get a step-up in basis on the purchased shares. The downside is complexity as the number of owners grows. Our article on cross-purchase agreements goes deeper.

Entity redemption: The business owns one policy on each owner and uses the proceeds to redeem the deceased owner’s shares. It’s simpler to administer, but surviving owners don’t get the same basis increase, and after Connelly the estate tax picture changed.

What Connelly v. United States changed

In Connelly v. United States (2024), the Supreme Court held that a corporation’s obligation to redeem a deceased shareholder’s stock does not offset the life insurance proceeds it receives to fund that redemption. As a result, the proceeds increased the value of the company, and of the deceased owner’s shares, for estate tax purposes.

For owners with larger estates, corporate-owned redemption plans may now create more estate tax exposure than expected. Many advisors are reviewing existing entity plans and considering cross-purchase or other structures. With the federal exemption now $15 million per person, this matters most for larger businesses, but clients should review it with their tax and legal advisors.

The trouble with jointly owned policies

Because drafting a formal agreement takes time and legal fees, some owners skip it and simply own policies jointly. With owners A, B and C, A and B jointly own the policy on C, and so on. When C dies, A and B have funds to buy C’s interest.

But without a written agreement:

  • Surviving owners have no legal obligation to buy, leaving the deceased owner’s family in limbo.
  • The estate has no obligation to sell, so heirs may become new business partners.
  • There’s no fixed price for estate or income tax purposes.
  • Rearranging interests in the remaining policies could trigger transfer-for-value problems.

What advisors should do

If clients refuse to put a written plan in place, at least get coverage issued with the most suitable ownership arrangement, since the worst outcome is a death with no coverage in force. Then document your advice with a letter recommending they review the plan with their tax and legal advisors. Our buy-sell and business transition article offers more ideas.

Contact us for help structuring buy-sell funding or drafting that client letter.

Frequently asked questions

What is the main difference between cross-purchase and entity redemption?

In a cross-purchase, the owners buy policies on each other and purchase the shares themselves. In an entity redemption, the business owns the policies and buys back the shares.

What did Connelly v. United States decide?

The Supreme Court held in 2024 that life insurance proceeds a corporation receives to redeem a deceased owner’s shares are not offset by the redemption obligation, which can increase the company’s value for estate tax purposes.

Is joint ownership of life insurance a valid buy-sell plan?

It gets money to the surviving owners, but without a written agreement there’s no obligation to buy or sell and no set price. A formal agreement drafted by an attorney is strongly recommended.

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Reviewed by Tim Fuller on 2026-09-26

Tim Fuller, President of SRS Inc.

Tim Fuller

President, SRS Inc.

Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.

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