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

The primary purpose of a Disability Buy-Out policy is to ensure that there is a clear and legally binding agreement in place regarding the purchase of a disabled partner's interest in a business. In the event that a partner becomes disabled and can no longer participate in the business, this type of policy provides a designated amount of funds to facilitate the smooth transfer of that partner's share to the remaining partners. This helps to prevent potential disputes and ensures that the remaining partners can continue operating the business without the complications that could arise from ownership disagreements.

The use of a Disability Buy-Out policy not only solidifies business succession plans but also ensures that financial resources are available to allow for the outgoing partner's interest to be purchased at a pre-determined value, thereby providing clarity and security for both the disabled partner and the active partners in the business.