Story at-a-glance
- You’re more likely to become disabled than to die early—especially as a business owner.
- Disability buy-out insurance helps partners buy out a disabled owner fairly.
- It protects the business, the disabled owner, and all remaining partners.
- Policies usually pay in a lump sum and kick in after 1–2 years.
- This avoids legal fights, lost income, and disruptions to daily operations.
Statistically, a person is up to ten times more likely to become disabled than they are to die prematurely. In the case of businesses and their owners, this means that is especially important to insure against one owner becoming disabled and unable to continue running the business. A disability buy-out insurance policy enables either the remaining owners, or the business entity itself, to buy-out the disabled owner’s share of the business at an agreeable price.
The Benefits of Disability Buy-Out Insurance
Disability buy-out insurance provides benefits for all parties.
- The disabled owner is guaranteed a buyer willing to pay a reasonable price for their share of the business. Because a formula is already put in place to determine a reasonable price, it also negates the need for litigation or for negotiation on the price. Furthermore, it enables the individual to concentrate on recovering from illness or injury without the added concerns of running the business or finding a suitable buyer.
- The remaining owners are enabled to purchase the shares in their business without having to seek an outside investor. This ensures that they are able to continue in the normal operation of the company without having to relinquish any control. Continuity in daily operations is guaranteed and the remaining owners are provided with adequate funding to buy out the disabled partner.
- The business itself would normally continue to pay the disabled partner an income, or return on their investment. This financial drain can cause serious problems for the remaining partners, especially, who will need to pick up the pace to meet the increased demands. With a buy-out policy in place, this does not have to be the case because the insurance is used to cover against this liability.
Insurance Payment Types
It is most common for a disability buy-out policy to offer a lump sum payment. This money is then used to complete a buy out in one installment. However, it is possible to arrange for the disabled partner to receive their payment in multiple installments, but this needs to be agreed when the policy is first placed in force.
Elimination Period
Not all disabilities or illnesses last a lifetime. The majority of disability buy-out insurance policies include an elimination period consisting of between one and two years. This period helps to limit the impact of the disability on the business, and it also allows the disabled owner time to determine whether or not they will be able to consume normal duties or whether a buy-out is the best solution for all concerned.
Disability Buy-Out Insurance Protects Everybody
Disability buy-out insurance provides a safeguard against a possibility that nobody really wants to consider. However, should one or more owners of a business suffer a disability it can cause a major strain not only on the stricken individuals, but also on the remaining owners and the business itself. Disability buy-out insurance works to ease this strain and provide a beneficial solution for all parties.
Frequently Asked Questions
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