Disability income insurance can play an important role in protecting your income as a practicing dentist should you become injured or ill and unable to work.
Did you know there is also protection available if your business partner is the one who becomes injured or ill? Read on to learn more about disability buyout insurance or buy/sell insurance and why it can be an important policy to obtain:
Disability Buyout Insurance and How It Works
If one business partner suffers an injury or illness that prohibits them from working, disability buy/sell insurance may help to fund the buyout of their share of the practice. You can continue to focus on maintaining and/or growing your practice without having to worry about funding the buyout of a disabled business partner.
Peace of Mind for Partnerships
One big potential benefit of disability buyout insurance is that it may help to shoulder the unexpected financial burden of buying out adisabled business partner/shareholder.
Disability buyout policies protect both the disabled partner as well as the remaining partner(s). The disabled partner receives his/her value for their share of the practice. The remaining partner(s) are able to purchase the disabled partners shares without having to pay out of earnings and/or savings. While the remaining partners may be able to secure a bank loan to fund the buyout, it may not prudent given the loss of production of the disabled partner and the impact to the overall practice. Disability buyout policies facilitate business continuation.
Predetermined Price per Share
When purchasing a buyout insurance plan, the value of the practice and the amount of each share will be determined based on the valuation method as defined in the underlying buy and sell agreement. Having predetermined the buy-out valuation method may help protect the value of each partner’s interest. You should review these issues with a legal professional.
Disability buy/sell policies include a waiting period, also called an elimination period, before any benefits are payable. This elimination period can serve as a wait and see period to determine if the disabled Dr. may be able to return to the practice. At the expiry of the elimination period, if the disabled Dr. has not returned to practice, the policy may begin paying benefits.
It is important to note that the elimination period of the disability buy/sell policy should be consistent with the timeframe specified in the underlying buy and sell agreement. Oftentimes, disability buy/sell policies include a 12 month elimination period.
How It Pays
Disability buyout benefits are paid in accordance with the specifications of the policy which in turn should be in parity with the underlying written buy and sell agreement. Benefits may be paid in a lump sum, paid in monthly installments, or a combination of both. As discussed above, no benefits are payable until the expiry of the waiting period or elimination period. It is important to note that a written buy and sell agreement agreement generally must be in effect at the time of a disability for any benefits to be paid.
How Buyout Insurance Differs from Disability Income Insurance
Disability income insurance may replace a portion of your lost income if you are disabled and unable to return to work. Like virtually all forms of insurance, you buy them for the protection they provide, hoping you never have to cash in on those investments.
Disability Buyout Insurance may help fund the buy-out of a disabled partners interest. The latter may be even more out of your control as we may all have ways of managing our own health and known injury risks.
Learn More about Disability Buy/Sell Insurance
Learn more about buy/sell insurance for dentists in our resource Disability Buy/Sell Insurance. Explore how this insurance protects you and your practice and what you can expect if you have to utilize your buy/sell policy.
Or, request a free consultation to learn about disability buyout or buy/sell insurance to protect your practice from specific unforeseen events.
Treloar & Heisel and Treloar & Heisel Property and Casualty are divisions of Treloar & Heisel, Inc.
Insurance products are offered through Treloar & Heisel, Inc.
This content is intended for general informational purposes only and should not be construed as advice. Treloar & Heisel, Inc. and its divisions do not offer legal advice. Please consult with a legal professional concerning this topic.
Policy terms and definitions may vary. You should consult your policy for the binding terms and definitions.