A disability buy-out insurance plan funds an agreement designed to provide the company owners with the money they need to purchase a disabled owner’s interest in the company at a mutually agreeable price and at the correct time. By purchasing the policy before the disability strikes, the business can provide a mutually agreeable solution to a very difficult situation.
The advantages for the disabled owners include:
- Assures a definite price and buyer under mutually agreeable conditions
- Avoids costly and time-consuming litigation trying to reach a fair price
- No need to worry about the ability of the business to meet the buy-out commitment
- Family members can direct their attention to assisting the disabled person instead of worrying about protecting their share of the business
The advantages to the active business owners are:
- Assures they can buy-out the disabled owner’s share at a price and a time agreed to by everyone concerned at minimal cost to the business
- Creditors, customers and employees are assured of business continuity
- Active owners remain in control of the business
- Assures the disabled owner will not sell their interest to an outsider because of cash needs
The insurance premiums are not tax-deductible and any benefits paid to the company are received tax free. Funds paid to the disabled owner, are however taxed as a capital transaction.