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Disability Buy-Out Policy

A disability buy-out policy is a type of long-term disability insurance which is purchased so that one business partner can buy out the disabled partner for his or her share of the company. These buy-out disability policies usually require the claimant to be totally disabled for at least 12 months. Furthermore these buy-out disability policies require the buy-out to take place in accordance with the buy-sell agreement that has been agreed upon between the partners.

We have represented multiple clients with buy-out disability policies and the common issues usually include:

  1. The business drafted a buy-sell agreement a long-time ago and the agreement does not accurately reflect the current value of the business;
  2. The business does not have a buy-sell agreement and can the business draft a new buy-sell agreement post the date of disability;
  3. The disability company is claiming that the buy-sell agreement values the shares of the business at more than the fair market value and the disability company does not want to pay the full value of the buy-out policy; and
  4. The amount of buy-out disability coverage is insufficient, but it is unclear whether the disabled partner must sell all of his or her shares in order to recover benefits under the buy-out policy language.