Disability Buy-Sell Insurance

Disability buy-sell insurance is a type of insurance that helps business owners protect their business in case one of the owners becomes disabled. This insurance is designed to provide funding to buy out a disabled owner's share of the business.  

Here are some key features of disability buy-sell insurance:

• It is typically purchased by co-owners of a business to protect the business in case one of them becomes disabled.
• The policy pays out a lump sum benefit to the business owners if one of them becomes disabled and is unable to work.
• The policy can be structured as either a cross-purchase plan or a redemption plan. In a cross-purchase plan, each owner purchases a policy on the other owners. In a redemption plan, the business itself purchases a policy on each owner.
• The policy benefit amount is usually based on the value of the disabled owner's share of the business.

• The policy may have a waiting period before benefits are paid, typically ranging from 30 to 180 days.
• The policy may also have a benefit period, which is the length of time that benefits will be paid out if the disabled owner remains unable to work.
• The premium for the policy is generally tax-deductible as a business expense, and the benefits paid out are generally tax-free to the recipient.

Here's an example: Suppose that three co-owners of a business purchase disability buy-sell insurance policies on each other. Each policy has a benefit amount of $500,000, and the policies are structured as a cross-purchase plan. If one of the owners becomes disabled and is unable to work, the other two owners would receive a total benefit of $500,000 to buy out the disabled owner's share of the business. The policy has a waiting period of 90 days and a benefit period of two years.