What is the primary purpose of a Disability Buy-Out policy?

The primary purpose of a Disability Buy-Out policy is to fund the buyout of a disabled partner's interest in a business. This type of insurance is particularly important for partnerships and closely held businesses, where the sudden disability of one partner can create significant complications.

When a partner becomes disabled and can no longer fulfill their role or wishes to exit the business, the other partners may need to buy out their share to maintain control and prevent disruptions to business operations. The Disability Buy-Out policy ensures that there are sufficient funds available to facilitate this buyout, thereby providing financial security for both the remaining partners and the disabled partner's estate.

This policy alleviates potential financial strain by specifying how the buyout will be financed, thus avoiding the need for the remaining partners to come up with a significant sum of money unexpectedly or to rely on external financing options, which can be challenging and may not be desirable in the context of a partnership. Additionally, this coverage can help prevent disputes among partners about the valuation and dissolution of their business interests in the event of a disability.