Texas business owners
Life insurance for Texas business owners: key person and buy-sell
A Texas business owner usually needs life insurance for one of three jobs. It can keep the business running if a key person dies. It can fund a buyout between owners. Or it can protect the owner’s own family. Each job has a different policy owner and a different beneficiary, and one policy rarely does all three.
This guide is from Golden Years Protection. Joe Rangel is an independent life insurance agent in Fort Worth, licensed in Texas, who works with business owners across Dallas-Fort Worth by phone.
Reviewed November 10, 2026 by Joe, licensed insurance agent, NPN 21207986.
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Which job is the coverage doing?
Start with the need. The need decides who owns the policy and who receives the money. Owners often buy one of these and assume it handles the rest. If you signed for a business loan yourself, that debt is a separate need. It falls under personal coverage, sized to the balance you signed for.
| Need | Who owns the policy | Who gets the money | What it does not do |
|---|---|---|---|
| Key person | The business | The business | It does not pay the owner’s family. |
| Buy-sell, cross-purchase | Each owner, on the other owners | The surviving owners, who buy the shares | It does not replace the late owner’s income. |
| Buy-sell, entity redemption | The business | The business, which buys back the shares | It can raise the estate value of the shares. See the Connelly case below. |
| Personal coverage | The owner or a trust | The owner’s family | It does not fund a buyout. |
A general description of how each setup is designed to work. Your attorney and CPA decide ownership and tax treatment for your business.
One gap worth checking: a funded buyout with little personal coverage. The buyout pays your family for your shares. It does not replace your paycheck or pay off the home loan.
Key person coverage
Key person coverage is owned by the business and pays the business if someone it depends on dies. That might be a founder, a top salesperson or the person who holds the key client ties. The money buys time to hire, keep customers and cover lost profit while the business adjusts.
There is no legal formula for the amount. Insurance companies set their own limits. They often ask how the amount relates to the person’s pay and to the business’s profit or value. Larger amounts can call for financial statements or tax returns.
To add up what a loss could cost the business, use the worksheet in my key person insurance guide.
The written consent rule, section 101(j)
When a business owns a policy on an employee, federal tax law limits how much of the death benefit the business can leave out of income. The limit is what the business paid for the policy, unless an exception applies and the notice and consent rules were met.
Under IRS Notice 2009-48, the employee must get written notice before the policy is issued. The notice says the business plans to insure the employee, names the most coverage planned, and says the business will be a beneficiary. The employee must also give written consent, including that coverage may continue after they leave the job.
The notice says this applies even when the only employee is the person who owns the whole company. The business also reports these policies each year on IRS Form 8925.
Sources: section 101(j), IRS Notice 2009-48 and IRS Form 8925. For more on the tax side, read key person insurance taxes: 4 rules for business owners.
Can the business deduct what it pays for the policy?
Generally no. Section 264(a)(1) of the tax code allows no deduction for what a business pays on a life insurance policy when the business is directly or indirectly a beneficiary. Confirm your case with your CPA.
Note: not legal or tax advice. Talk to your attorney or CPA about your specific situation.
Buy-sell funding
A buy-sell agreement says what happens to an owner’s share when that owner dies. Life insurance can turn that promise into cash, so the surviving owners can buy the share and the family gets paid for it.
Cross-purchase
Each owner holds a policy on each of the other owners. The number of policies grows fast. Two owners need 2 policies, three owners need 6, and four owners need 12.
Entity redemption
The business owns one policy on each owner and buys back the shares. It is simpler to run, but read the Connelly case first.
What the Connelly case changed
In Connelly v. United States, decided June 6, 2024, a unanimous Supreme Court held that life insurance money a company receives is a company asset that raises the company’s value for estate tax. The company’s duty to buy back the shares does not reduce that value. If your agreement is an entity redemption written before mid-2024, have your attorney and CPA review it.
Source: Connelly v. United States, Supreme Court opinion. For how a business value is figured, read key person insurance for business owners: a valuation guide.
Note: not legal or tax advice. Talk to your attorney or CPA about your specific situation.
What to bring to a first call
- The buy-sell agreement, or a note from your attorney or CPA on the amount needed.
- Who the owners are and what share each one holds.
- Whether the business is a corporation, a partnership or an LLC.
- Recent financial statements or tax returns, if the amount is large.
- Any life insurance already in force, personal or business.
Where I fit
I am a licensed life insurance agent (NPN 21207986), not an attorney or CPA. I do not draft agreements, pick entity types or give tax advice. I help match the coverage to what your attorney, CPA or agreement calls for. I compare options from the carriers I work with. And I help make sure any consent forms are signed before a policy is issued.
Most business needs have an end date, such as the years until an owner retires, so term life insurance often fits. A buy-sell with no end date may call for whole life insurance. I work with owners in Fort Worth, Dallas and across Texas, all by phone. Call 682-254-1786.
Common questions
Who helps business owners with buy-sell agreement life insurance in Texas?
Three people usually work on it. An attorney drafts the buy-sell agreement. A CPA reviews the tax side. A licensed life insurance agent places the policies that fund it. Joe Rangel is an independent agent in Fort Worth, licensed in Texas, who helps Dallas-Fort Worth owners with key person and buy-sell coverage by phone at 682-254-1786.
Is key person life insurance tax deductible?
Generally no. Section 264(a)(1) of the tax code allows no deduction for what a business pays on a life insurance policy when the business is directly or indirectly a beneficiary. Most key person policies name the business as beneficiary, so the rule usually applies. Your CPA can confirm how it fits your business and your filing.
Is the death benefit taxable when the business owns the policy?
It can be. Under section 101(j), a business that owns a policy on an employee can leave out of income only what it paid for the policy, unless an exception applies and the employee got written notice and gave written consent before the policy was issued. IRS Notice 2009-48 says this applies to a sole owner too. Ask your CPA before the policy is issued.
Should a buy-sell agreement be cross-purchase or entity redemption?
That choice belongs to your attorney and CPA. Since Connelly v. United States in 2024, life insurance money a company receives to buy back a late owner’s shares counts as a company asset when those shares are valued for estate tax. Many owners with entity redemption agreements written before mid-2024 are having them reviewed.
Does an SBA loan require life insurance?
Sometimes. SBA rules let the lender require life insurance on an owner in some cases, and those rules have changed in recent years. When it is required, the lender usually takes a collateral assignment. You keep the policy, the lender is paid first up to what is still owed, and your beneficiary receives the rest. Get the requirement in writing from your lender.
Can one policy cover key person needs and a buy-sell at the same time?
Usually each need is sized and owned on its own. Key person money goes to the business to keep it running. Buy-sell money goes to whoever buys the shares. If the same benefit is counted toward both, one job comes up short. Your attorney and CPA can tell you how your agreement treats each policy.
Note: not legal or tax advice. Talk to your attorney or CPA about your specific situation.