Protect the deal
Put life insurance on your seller
Part of what you're buying lives in the seller's head. A cheap term policy — key man insurance on the person handing it over — makes you whole if they die before the handover is done.
~$175
Per month, $500K on a 55-yr-old
3 yrs
Minimum — keep it for the loan
5 or 10
Year terms to quote
Note + 1yr
Coverage: seller note + a year of earnings
The risk nobody prices
The valuation covered the cash flow. It paid nothing for the part that makes the cash flow happen: thirty years of customer trust, handshake vendor terms, the Tuesday routine nobody wrote down. The transition period transfers all of it.
If the seller dies in month two, that transfer stops. The training agreement is void, the introductions never happen, and customers who stayed for the seller start taking calls from competitors. You still owe every loan payment.
You insured the building. Insure the handover.
What the policy does
A term life policy on the seller, with you (or the company) as beneficiary, pays cash at exactly the moment the deal loses its guide. Keep it in force for the life of the loan — 3 years at minimum. Sized to the seller note plus a year of earnings, it clears the note and buys you the time to replace what walked away.
| Coverage | The seller note balance plus one year of owner earnings |
|---|---|
| Why that size | It clears the note and funds a year of replacement guidance — real protection at a premium that never blocks the deal |
| How long to keep it | The life of the loan, 3 years minimum — quote a 5 or 10-year term |
| Beneficiary | You or the acquiring company |
| Example | $1.5M deal, $150K note, $300K earnings → $450K of term coverage |
Making it legal: insurable interest
You can insure a life when their death costs you money and they consent. The purchase agreement, a transition or consulting agreement, or a seller note all create that interest. The seller signs the application and sits for the exam.
What it costs
Term life on a healthy seller costs less than your monthly software stack. Estimates per month for a 10-year term, healthy nonsmoker:
| Seller in their 40s | ≈ $65/mo |
|---|---|
| Seller 50–54 | ≈ $110/mo |
| Seller 55–59 | ≈ $175/mo |
| Seller 60–64 | ≈ $275/mo |
| Seller 65+ | ≈ $475/mo |
Price your exact case in the toolkit below — coverage, age, and term — then get real quotes from licensed partners.
Your SBA insurance toolkit
Size the key-person coverage, run the SBA insurance checklist, track closing conditions, and request real quotes from licensed partners — free, no obligation.
Tool 1
SBA Insurance Checklist
The coverage an SBA lender typically requires before funding an acquisition.
0/7 confirmed
Tool 2
Life Insurance Requirement Estimator
Estimate the key-person / collateral coverage a lender will want, and the likely premium.
Tool 3
Request insurance quotes
Send your coverage need to CapBench's licensed insurance partners — free, no obligation.
Free · No obligation · Usually same-day
Tool 4
Insurance Condition Tracker
The insurance closing conditions a lender lists — check them off as you clear them.
0/7 confirmed
Estimates for planning only — not insurance advice or a binding quote. CapBench is not an insurer; licensed partners provide actual quotes and coverage.
Business life insurance, answered
- What is key-person life insurance and why is it crucial for small businesses?
- Who should a business identify and insure as a key person?
- What is the typical amount of key-person life insurance coverage needed?
- Who owns and is the beneficiary of a key-person life insurance policy?
- What are the tax implications of key-person life insurance premiums and benefits?
- Why would a buyer require life insurance on a seller during business acquisition?
- Who typically owns the life insurance policy on a seller post-acquisition?
- When does the SBA mandate collateral life insurance for business loans?
- What are the SBA's specific guidelines for acceptable collateral life insurance policies?
- What actions must a borrower take if unable to obtain SBA-required life insurance?
- Does the SBA require life insurance for business loans below a certain threshold?
- How does a collateral assignment of life insurance protect a lender?
Browse all SBA 7(a) questions →
Buying part of a business? You need this twice
In a partial purchase the seller stays as your partner, and the 2025 SBA rules keep them on a personal guarantee for two years. A buy-sell agreement funded by policies on each owner lets the survivor buy out a deceased partner's estate at a set price. Without one, your new partner is whoever inherits.
Common questions
Why would a buyer take out life insurance on the seller?
Part of what you bought lives in the seller's head: customer relationships, vendor history, how everything actually runs. A transition period transfers it. If the seller dies during that window, a term policy pays you the value that walked away.
Can I legally insure someone else's life?
Yes, with insurable interest and their consent. A purchase agreement, transition or consulting agreement, or seller note gives a buyer insurable interest in the seller. The seller signs the application and takes the medical exam.
How much coverage should a buyer put on the seller?
Size it to the seller note balance plus one year of owner earnings. On a $1.5M deal with a $150K note and $300K earnings, that means about $450K of term coverage — it clears the note and funds a year of replacement guidance for a modest premium.
What does a term policy on a seller cost?
Ten-year term for a healthy nonsmoker runs roughly $13 per $100K of coverage per month in their 40s, $22 in their early 50s, and $55 in their early 60s. $500K on a 55-year-old seller is roughly $175/month, and a 5-year term runs about 15% less.
Is this the same as key man insurance?
Yes — key man insurance (also called key person insurance) is a policy on someone whose death would damage a business. Companies usually buy it on owners and executives; buyers apply the same tool to the seller during the loan and transition years.
Who pays for the policy?
Someone always pays the premium — but it never has to be your pocket. Three honest structures: have the business pay it post-close as a company expense (it comes out of cash flow you now own, before your salary). Or negotiate seller-paid premiums for the first years into the LOI — the policy protects the seller's estate collecting their note, so they have real skin in it. Or add three years of premiums (~$6,300 on a typical policy) to the seller note, financing it over the loan term. Buyer's out of pocket at closing: $0.
Does the SBA require life insurance on the seller?
No. The SBA requires insurance on the buyer when the business depends on them and the loan has a collateral shortfall. Coverage on the seller is the buyer's own protection, negotiated in the purchase agreement.
CapBench is not an insurance carrier, agency, or agent. Estimates are illustrative; licensed partners provide actual quotes.
AI summary
This page explains key man (key person) life insurance placed by a business buyer on the seller — a term policy that pays the buyer if the seller dies during the transition, protecting the seller note, the training agreement, and the customer and vendor relationships you are actually buying. The toolkit lets you size coverage (typically the seller note balance plus one year of owner earnings), run the SBA insurance checklist, track closing conditions, and request quotes from licensed partners; the premium figures are illustrative estimates for healthy nonsmokers by age and term, not bound quotes. It is built for buyers structuring an acquisition who want to protect the deal and negotiate coverage into the LOI.
This is general information, not legal, tax, or financial advice, and CapBench is not a lender.
Source: CapBench. CapBench is not an insurance carrier or licensed producer; coverage and premiums are determined by licensed partners and the insurer.