Why Disability Buyout Matters in Succession Planning

When business partners plan for the future, preparing for the unexpected is key.
While many understand the importance of addressing the untimely death of a partner, the financial disruption caused by long-term disability often receives less attention.
Yet, a disability-triggered buyout can be just as challenging to manage.
Imagine this scenario: A partner in a successful multi-million-dollar company becomes permanently disabled. Who takes responsibility for their stake, and what are the financial implications? This was the reality faced by three business partners in a recent case.
The Problem
Their buy-sell agreement outlined a clear path for the repurchase of equity in case of death — a $15 million payout funded through life insurance for each partner. However, the agreement also required repurchase of equity after 12 months of total disability, valued at $15 million per partner. Unlike the death scenario, there was no funding strategy in place to fulfill this requirement. This oversight left the business exposed to substantial financial risk.
Without a plan, the partners faced tough choices: take on a debt of $15 million, or scramble for alternative funding. Neither option guaranteed the smooth transition needed to protect their business.
A Proactive Solution
To address this gap, we crafted tailored buy-sell disability insurance policies for the partners. With a lump-sum benefit triggered after a 12-month waiting period, these policies ensured that the buy-sell agreement was executed seamlessly, safeguarding both the company’s financial stability and the equity interests of all parties involved. In this case, the premium for the policy amounted to $27,600 — a small price for peace of mind.
Why Act Now
Integrating disability buyout funding into a succession plan is as critical as providing life insurance. Without it, a long-term disability could jeopardize both the affected partner’s financial security and the company’s future. As demonstrated, a well-structured strategy can prevent significant disruptions, ensuring continuity and honoring all partners’ stakes.
Planning ahead removes the risk of a crisis. Take the time now to explore options for disability buyout coverage with a trusted insurance specialist. It’s an investment in stability and resilience — keys to a thriving business.
Contact your Disability Insurance Specialist for more information or assistance with a case.