How many policies are necessary for a cross purchase (buy/sell agreement) among three persons?

In a cross-purchase buy-sell agreement among three individuals, each person must purchase a life insurance policy on the lives of the other individuals. This ensures that if one of the partners passes away, the remaining partners have the necessary funds to buy out the deceased partner's share of the business from their beneficiaries.

For three people, each person will need to have a policy on the other two individuals. So, the first person needs policies on the second and third persons (2 policies), the second person needs policies on the first and third persons (2 policies), and the third person needs policies on the first and second persons (2 policies).

Thus, the total number of policies is calculated as follows:

• Person A insures Person B and Person C = 2 policies

• Person B insures Person A and Person C = 2 policies

• Person C insures Person A and Person B = 2 policies

Adding these together results in a total of 2 + 2 + 2, which equals 6 policies necessary for a cross-purchase agreement among three individuals. This understanding clarifies why the correct choice reflects the total number of policies needed for the agreement to function effectively.