The operations of small businesses are vastly different in comparison to the operations of large corporations, and therefore come with a unique set of hurdles and limitations. One of the largest limitations which impact operations of small businesses stem from the limited number of owner’s/partner’s relative to the volume of managerial and/or fiscal roles and responsibilities.
The inability to share those roles and responsibilities across a larger set of owner’s/partner’s or a “key person”, creates individual bottlenecks in the overall operations of the business. These bottlenecks increase the need for the key person’s presence, in order to maintain successful business operations. In the event the key person becomes disabled and is absent, the small businesses may find themselves struggling to maintain operations, which may lead to downsizing or closure.
Disability Buy-Out Insurance Coverage
A disability buy-out insurance plan is designed to provide the funds needed to purchase a disabled owner or partner’s interest in the business if they become disabled. This coverage grants the remaining owners/partners the ability to continue business operations by replacing the disabled key person who is unable to return. By being able to replace the key person, this allows the business to remain under normal operations without having to fiscally jeopardize the company.
Disability buy-out insurance should be made part of any business continuation plan or business succession plan as it will ensure that the disabled business owner receives a fair market value for his or her interest in the business. At the same time, it will protect all business owners from the threat that a disability may impose on the company by allowing them to buy-out the disabled owners interest at an agreed upon price set forth in a buy-sell agreement.