Disability Buy-Out Insurance

Definition - What does Disability Buy-Out Insurance mean?

A disability buy-out insurance is insurance that the owners of a business can purchase to generate funding for a buy-out in the event that one of the owners gets a disability that results in an inability to remain an owner of the company. Therefore, if a partner becomes disabled and needs to sell their share of the company, the other partners can file a claim and get a benefit that they can use to buy-out the disabled partner.

Insuranceopedia explains Disability Buy-Out Insurance

Co-owners of a business or corporation purchase disability buy-out insurance policies because without it, they may not have the funds available to buy-out the disabled partner. For example, if a cell phone company owner has an interest in the company worth $20 million and suddenly becomes disabled and wants to sell their share, that is a very large amount of money to generate at short notice. Without disability buy-out insurance, the other co-owners might not be able to buy out the departing partner's share, and thus, a third party might be able to buy it and subsequently have a major stake in the company. However, if they have the proper coverage, they could use the benefit to purchase the $20 million share.

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