Your income is your most important asset.
This would protect all parties involved with a smooth, funded transfer of business interests in the event of an untimely death of one of the owners. However, many businesses fail to address a more likely scenario – the disability of one of the principals and how to fund the transfer of ownership.
There are many business and financial considerations that need to be addressed upon the disability of a principal. Since that person is still alive and not eligible to begin collecting retirement funds, he certainly would need some money to live on. He has an equity interest in the business and would need access to that. A disabled individual that can no longer contribute to the business can be quite a burden on the remaining partners. Both parties need to affect a transfer of ownership whereby the disabled individual can receive compensation for his equity interest and remaining owners would have full control of ownership rights. It also reduces the burden of dealing with the disabled partners, significant other, or family
Disability buy-out insurance is designed specifically to provide the company’s owners with the money they would need to reimburse a disabled owner for his or her financial interest in the company. This money is, of course, available over and above any replacement income the owner or partner is receiving under a traditional disability income insurance contract.