This type of insurance provides funds to buy company shares if a shareholder or partner dies. It is intended for private limited liability companies or partnerships where there may be only a small number of principal shareholders or partners. It is usually done in conjunction with an agreement to give the remaining shareholders and partners the first option to buy these shares.
All privately held companies and partnerships should have an agreement that ensures the surviving partners are able to purchase the deceased partner's share of the business. This is usually a Buy and Sell Agreement outlining who the deceased shareholder/partner's estate must sell the shares to and the valuation formula.