A disability buy-out (business purchase) policy is used to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A disability buy-out policy funds a business purchase agreement: when an owner becomes totally disabled, the policy provides a benefit that the healthy owners use to buy the disabled owner's interest, often after a specified elimination period. This prevents a disabled owner from remaining a financial participant while unable to contribute, and it gives the disabled owner a market for their interest. Premiums and benefit timing are designed to match the buy-sell agreement's terms, and the coverage is a recognized business use of disability income insurance.
Why the other options are wrong
- B) Medical expenses are the province of health insurance, not business purchase funding.
- C) Product liability is a casualty insurance exposure, unrelated to disability buy-out coverage.
- D) Salary continuation for employees is closer to group disability coverage; buy-out insurance funds the transfer of an owner's interest.
Memory hook
Buy-out DI funds the handshake: healthy owners buy the disabled owner's share. Business continuity, funded.