Business Succession: The Role of Life Insurance in a Stock Redemption Plan

One of the key concerns for business owners is how to ensure the continuity of their business after they retire or pass away. One solution to this problem is a stock redemption plan that utilizes life insurance policies. In this article, we will explore the benefits of using life insurance as a part of your business succession plan.

What is a stock redemption plan?

A stock redemption plan is a type of business agreement that allows a company to purchase the shares of a departing or deceased shareholder. In a stock redemption plan, a business pays for the stock with cash or through borrowed funds. This type of plan can be advantageous for both the company and the departing shareholder.

The Benefits of a Stock Redemption Plan

A stock redemption plan has several benefits:

  • It ensures the continuity of the business by providing a method for the company to repurchase shares from a departing or deceased shareholder.
  • It provides liquidity for the departing shareholder or their estate by allowing them to sell their shares for cash.
  • It can be used to fund key person life insurance policies that benefit the company.

The Role of Life Insurance in a Stock Redemption Plan

Life insurance is an important component of a stock redemption plan. Here’s why:

  • Life insurance can provide the necessary funds for the stock purchase. By using a life insurance policy to fund the plan, the business can ensure that it has the financial resources to purchase the shares without having to borrow or use cash reserves.
  • Life insurance can help protect the business from the loss of a key executive or shareholder. If a key shareholder or executive passes away, the company can use the policy’s death benefit to purchase their shares.
  • Life insurance can provide tax benefits to the company. The premiums paid on the policies may be tax-deductible, and the death benefit is typically received income tax-free.


A stock redemption plan that utilizes life insurance policies can be an excellent way to ensure the continuity of your business and protect it from potential loss. If you are a business owner interested in learning more about stock redemption plans and life insurance, please contact our team at

Leave a Reply