Disability Buy-Out Agreements

disability buy-out agreements

A disability buy-out agreement 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.

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