What is Disability Buy-Out Insurance?

Disability buy-out insurance is designed to provide coverage funds to buy out the disabled individual’s interest in a business upon the total and permanent disability of a shareholder or partner. Because of the many factors involved as well as the increased potential for adverse selection and moral hazard, insurers underwrite these policies very tightly and require the businesses and the key employee-owners to meet stringent business, financial, and personal standards before they will permit a business to purchase this type of coverage. For example, insurers typically require a company to have been in business for a certain amount of time, to have consistent profits and revenues, and stable and strong management before they will issue a disability buy-out insurance policy.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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