What Is Disability Buyout Insurance?

Disability income insurance may 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 that there is also protection available if you or your business partner(s) become injured or ill? Read on to learn more about disability buy out insurance and why it may be an important policy to obtain:

Disability Buyout Insurance for Dentists: 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 business partner who becomes disabled and can no longer work in the practice as a result.

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 a business partner or shareholder who is unable to work due to a disability.

Disability buyout insurance policies protect both the partner with a disability as well as the remaining partner(s). The partner with a disability receives his/her value for their share of the practice. The remaining partner(s) are able to purchase this partner's 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 be prudent given the loss of production of the partner with a disability and the impact on the overall practice. Disability buyout policies may facilitate business continuation.

The Benefits Under a Disability Buyout Policy

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. 

The Elimination Period

Disability buy/sell insurance 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 doctor with a disability may be able to return to the practice. At the expiry of the elimination period, if the doctor 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 Your Disability Buyout Policy 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 generally must be in effect at the time of a disability for any benefits to be paid.

How Disability 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 use them.  

Disability Buyout Insurance may help fund the buy-out of a partner's interest if that partner becomes disabled. 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 Buyout Insurance

To learn more about buy/sell agreement insurance for dentists, download our resource: Disability Income Insurance for Dentists. 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.

About Treloar & Heisel

Treloar & Heisel, an EPIC Company, offers dental and medical professionals a comprehensive suite of financial products and services ranging from business and personal insurance to wealth management. We are proud to assist thousands of clients from residency to practice and through retirement. Our experienced teams deliver custom-tailored advice through an active local presence, while our strong national network ensures that clients experience the same high level of service throughout the country.

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