An earnout is a purchase-price adjustment mechanism in mergers and acquisitions where sellers receive additional consideration if the acquired business meets future performance targets. Metrics may include revenue, EBITDA, or specific milestones. Earnouts bridge valuation gaps, align incentives, and shield buyers from overpaying. Terms address measurement periods, accounting standards, control rights, and dispute resolution. Insurance advisors encounter earnouts when structuring key-person coverage, buy-sell updates, or liquidity planning to protect expected payments if a principal dies before targets are met.

Deal teams model earnout scenarios and then update buy-sell or key-person coverage so a death or disability does not jeopardize contingent payments. Lenders sometimes require insurance to protect earn out obligations. Advisors memorialize the payout formula, milestones, and time frames in planning documents and coordinate policy collateral or beneficiary assignments to mirror the purchase agreement.