Buy-sell agreement funding is the strategy and set of financial tools used to ensure that the obligations created by a buy-sell agreement can be met when trigger events occur. Common funding methods include life insurance for death events, disability buyout insurance for long-term disability, sinking funds, bank financing, and installment payments. Life and disability insurance are often preferred for their ability to provide immediate, tax-efficient liquidity. Funding design must align with the agreementTMs structure"cross-purchase, entity-purchase, or hybrid"and consider tax treatment of premiums and benefits, as well as long-term affordability. Without proper funding, even a well-drafted buy-sell agreement may fail to protect owners and families in practice.

Advisors lead buy-sell agreement funding discussions, modeling different approaches and their impact on cash flow and ownership outcomes. They recommend appropriate face amounts, policy types, and ownership structures, often in collaboration with attorneys and CPAs. Underwriters evaluate financial justification based on business valuation and owner compensation. Advisors revisit funding levels regularly as business value and owner circumstances change, adjusting coverage to prevent underinsurance or overinsurance. Understanding buy-sell funding enables advisors to move beyond drafting agreements to implementing practical, durable financial solutions that work when needed.