Going into business with one or multiple partners can pose more risks than simply going it alone. The biggest difference with multiple owners in a business is, what happens if you or your business partner is unable to work?
Here at Consolidated Planning, every business planning case focuses on first helping business owners adequately protect their business.
In this article, we’ll help you understand why you and your business partners should have Disability Buy-Out Insurance and how it functions within your Buy-Sell Agreement, all to protect your future income regardless of any unforeseen outcomes.
Why Should You And Your Partners Have Disability Buy-Out Insurance?
Disability Buy-Out Insurance (DBO) is another one of those things you’d like to not think about, would love to not use, but will certainly give you a sense of financial confidence to have it.
One of the most critical issues that businesses with multiple owners face is the risk of a partner becoming disabled and unable to contribute to the business. This is where DBO becomes an invaluable tool. DBO is designed to protect the business by providing the necessary funds to purchase the shares of the disabled partner, ensuring the continuity of the business.
The most impactful part of DBO is it not only protects the interests of the business but also helps to ensure that the disabled partner receives fair compensation for their share of the company. Without such protection, your business may face:
- Financial strain
- An inability to make decisions, and
- Conflicts among remaining partners
DBO insurance gives you a clear path for ownership transition, protecting both the disabled owner and the business.
How Disability Buy-Out Insurance Works Within A Buy-Sell Agreement
To most effectively utilize DBO insurance, it should be integrated into your Buy-Sell Agreement. This agreement outlines the terms under which an owner’s shares will be bought out in the event of a disability. Typically, the agreement specifies the conditions that trigger the buy-out, such as a disability lasting for a predetermined period, often 18 to 24 months. Once triggered, upon one owner becoming disabled, the insurance policy provides the necessary funds to execute the buy-out.
This insurance policy itself is specifically tailored to reflect the language and stipulations of the Buy-Sell Agreement. This includes:
- Providing a legal framework
- Setting terms and valuation methods
- Ensuring consent between all owners
- Seamless transfer process
- Protection against disputes
- Tax efficiencies and
- Flexibility with policy structure
On rare occasions a DBO can standalone but it’s advantageous to align the policy with your Buy-Sell Agreement. With the right DBO insurance within your Buy-Sell, you can help ensure both financial stability for the disabled owner(s) AND the remaining partner(s).
Protecting Financial Stability for Disabled Owners
In unfortunate circumstances when a business owner becomes disabled, Disability Buy-Out Insurance offers a crucial safety net. It allows them to protect the financial value of their investment in the business even when they can no longer actively participate. This ensures that the disabled owner receives a fair and sustaining return on their life’s work.
The insurance payout provides financial support, enabling the disabled owner to remove themselves from the business and financial uncertainty. Doing so ensures that it is possible for the owner to exit the business while receiving compensation that reflects the true worth of their shareholding.
Ensuring Business Continuity for Remaining Partners
For the remaining partners, the absence of a partner due to disability can significantly disrupt business operations, including an increase in workload and complexity of decision-making processes. DBO insurance eliminates these challenges for the remaining owner(s) by facilitating the buy-out of the disabled partner’s shares, streamlining ownership and decision-making.
With the disabled owner’s stake removed from the business, the remaining owner can begin restructuring to maintain business continuity without the looming uncertainty of conflicts or power struggles with unresolved ownership issues.
Protect Your Future Income With Disability Buy-Out Insurance
Unforeseen circumstances are just that. Unforeseen. And when your future income is dependent upon how you protect today’s income, you can’t leave any chances when it comes to that protection.
Disability Buy-Out insurance is one way for multi-owner businesses to do just that – protect all parties involved, regardless of their circumstances.
To understand policies for DBO insurance, ensure that the language aligns with your Buy-Sell Agreement, or simply update your agreements, chat with an experienced business professional at Consolidated Planning.
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Exp. 11/2026
Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. The information provided is based on our general understanding of the subject matter discussed and is for informational purposes only.
This material contains the current opinions of Consolidated Planning only. These are not the opinions of Park Avenue Securities, Guardian, or its subsidiaries.
