Disability Buy-Out Insurance

What Does Disability Buy-Out Insurance Mean?

Disability buy-out insurance is a type of coverage that business owners can purchase to fund a buy-out if one of the owners becomes disabled and can no longer continue as an owner of the company. If a partner becomes disabled and needs to sell their share, the other partners can file a claim and receive a benefit to facilitate the buy-out of the disabled partner’s share.

Insuranceopedia Explains Disability Buy-Out Insurance

Co-owners of a business or corporation purchase disability buy-out insurance to ensure they have the funds to buy out a disabled partner. Without this coverage, they may lack the resources to complete the buy-out. For example, if a cell phone company owner holds a $20 million interest in the business and becomes disabled, selling that share would require a substantial amount of money on short notice. Without disability buy-out insurance, the remaining co-owners might struggle to buy the departing partner’s share, allowing a third party to acquire it and gain a major stake in the company. With adequate coverage, however, the co-owners could use the benefit to purchase the $20 million share.