PSI Ohio Insurance Practice Exam

Which type of plan allows a business to buy out a partner's interest in case of their disability?

1. Key person insurance

2. Business interruption insurance

3. Disability buy-sell agreement

4. General liability insurance

The correct answer is: Disability buy-sell agreement

A disability buy-sell agreement is specifically designed to address the situation in which a business owner or partner becomes disabled and is unable to continue participating in the business. Under this type of plan, the remaining partners or the business itself agree to purchase the disabled partner's share of the business at a pre-determined price, providing financial security for all parties involved and ensuring a seamless transition. This arrangement helps to prevent potential disputes regarding the value of the disabled partner's interest and facilitates the continuation of the business without disruption. It also ensures that the disabled partner or their beneficiaries receive fair compensation, which is essential during a time that may already be financially challenging due to the partner's disability. Key person insurance, in contrast, protects against the loss of a key individual whose absence could negatively affect the business, but it does not specifically deal with the buyout of their interest. Business interruption insurance provides coverage for loss of income during times when business operations are disrupted, but it does not involve the buy/sell dynamics between partners. General liability insurance protects against claims of injury or damage but does not relate to partner buyouts or disabilities. The features and benefits of a disability buy-sell agreement make it the ideal choice for addressing the needs of a business facing the potential