Most co-owned businesses have, or should have, a buy-sell agreement: a contract that says what happens to an owner's stake if they die, become disabled, or leave. Fewer have thought about the harder half of the question, which is where the money to honor it actually comes from.
A buy-sell agreement without funding is a promise with no mechanism. It may say the surviving owners will buy the departing owner's share at a set price, but if the business does not have that cash on hand, the promise collapses at exactly the moment it matters. The surviving owners face a choice between draining the company, taking on debt, or renegotiating with a grieving family, and none of those is the plan anyone signed.
This is the classic use of life and disability insurance in a closely held business. Policies are structured so that, when a triggering event happens, the proceeds provide the cash to buy out the departing owner's interest at the agreed terms. The two common structures, a cross-purchase where owners insure each other, and an entity-purchase where the company holds the policies, carry different tax and ownership consequences, and the right one depends on the number of owners and the shape of the business.
A buy-sell is only as good as the valuation behind it. A price set at formation and never revisited can badly understate or overstate the business years later, funding the wrong number. The agreement, the valuation, and the funding have to move together, and they need a periodic look. We coordinate the insurance side with your attorney and accountant, because a buy-sell is a legal, tax, and insurance instrument at once, and the funding is what turns it from a document into a plan. This is general information, not personalized advice.
The agreement writes the plan. The funding makes it real.