Part of our guide: Disability Income Insurance: Solutions, Tools and Guides →
Buy-sell agreements almost always address death and retirement. Far fewer address what happens if a partner becomes too sick or injured to work. Here’s how disability buy-out coverage is structured, and why it’s often more affordable than owners expect.
Key takeaways
- Based on industry disability tables, three partners averaging age 37 have about a 78% chance that at least one becomes disabled before retirement.
- A disability buy-out policy typically uses a 12- to 24-month elimination period and pays a lump sum, installments, or both.
- In one example, covering all three partners of a $1.5 million CPA firm cost less than $500 a month.
Three partners, average age 37: roughly a 78% chance at least one becomes disabled before retirement.
Why partners need it
Partners depend on each other. If one can no longer function as an owner, the others need a way to buy out their interest, and the disabled partner needs to be paid fairly. Based on the Commissioner’s Individual Disability Table A (equally weighted, all occupation classes, unisex), three partners averaging age 37 have about a 78% chance that at least one becomes disabled before retirement. More on adding disability to buy-sell planning.
Key design decisions
- Benefit amount: tied to the disabled owner’s share of the agreed business value, with options to increase as the business grows.
- Elimination period: usually 12, 18, or 24 months, long enough to confirm the disability is lasting and to match the buy-sell’s trigger.
- Payout: lump sum, monthly installments, or a down payment plus installments.
- Ownership: cross-purchase (owners own policies on each other) or entity-owned, matching the buy-sell structure.
Cost example
For a three-partner CPA firm with an average age of 35 and a $1.5 million valuation, one carrier’s plan covered all three partners for less than $500 a month, with premiums guaranteed to retirement age. Costs vary by ages, occupation, and design.
Next steps
Review clients’ existing buy-sell agreements to see whether disability is addressed, and make sure the agreement’s definition of disability matches the policy.
Frequently asked questions
How likely is a business partner to become disabled?
For three partners averaging age 37, industry tables suggest about a 78% chance at least one becomes disabled before retirement.
What elimination period is used for disability buy-out insurance?
Typically 12 to 24 months.
Is disability buy-out insurance expensive?
Often less than expected. In one example, three CPA partners were covered for under $500 a month combined.
Reviewed by Tim Fuller on 2026-09-25
Tim Fuller
President, SRS Inc.
Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.
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