What is a primary benefit of utilizing life insurance as part of a buy-sell agreement?

Utilizing life insurance as part of a buy-sell agreement primarily ensures liquidity for the business, which is crucial in situations where one owner passes away or becomes incapacitated. Life insurance provides cash proceeds that can be used by the remaining owners to purchase the deceased owner's interest in the business. This immediate availability of funds helps avoid any financial strain on the business, ensuring that ownership transitions smoothly without needing to liquidate other assets or secure loans at potentially unfavorable terms.

This liquidity is particularly important as it allows the surviving owners to maintain control of the business without interruption, while also providing the family of the deceased owner with fair compensation for their share. Other options, while they may have their own benefits in different contexts, do not directly address the immediate cash needs that arise from ownership changes in a business setting.