The Hidden Gap in Business CONTINUITY Planning for Partner Disability
In business succession planning, preparing for an owner’s death is standard, with buy-sell agreements outlining the steps to take. However, a partner’s permanent disability—a more likely scenario—is often overlooked, leaving businesses exposed to financial, legal, and operational risks.
Without a clear plan, a disability can disrupt ownership, strain cash flow, or lead to disputes. Disability Buy-Out (DBO) insurance addresses this gap by funding a buy-sell agreement when an owner becomes permanently disabled.
What Is Disability Buy-Out Insurance?
DBO insurance provides funds to execute a buy-sell agreement if a business owner becomes permanently disabled. It allows the business or remaining partners to buy out the disabled owner’s share without:
Using company cash reserves
Incurring new debt
Involving external investors
This ensures business continuity, maintains control, and protects the disabled owner’s financial interests.
Why Disability Is Often Unaddressed
Despite its importance, disability is rarely included in succession plans. Fewer than two-thirds of buy-sell agreements account for disability, and even fewer mandate a buy-out in such cases. This oversight can jeopardize the business and strain relationships among owners.
Key questions to consider:
What happens if a co-owner becomes permanently disabled?
Should their family assume an active ownership role?
Can the business afford to buy out their share without disruption?
Unclear answers signal a need for better planning.
Who Needs DBO Insurance?
DBO insurance is critical for:
Small businesses valued under $10 million with 2–10 owners
Professional practices (e.g., law firms, medical practices, accounting firms)
Businesses with a key employee ready to buy out the owner
Owners aged 30–50 with non-manual roles
If this describes your business or your clients’, DBO insurance should be a priority to safeguard your succession plan.
CONTACT US TODAY IF YOU NEED ASSISTANCE WITH THIS OR ANY OTHER BUSINESS CONTINUITY PLANNING ISSUE: 301-859-0860 | email@ennislp.com
