Understanding Buy-Sell Disability Insurance

Shawn Plummer

CEO, The Annuity Expert

What Is Buy-Sell Disability Insurance

Buy-sell disability insurance is a specialized insurance product designed to protect businesses if one of the owners becomes totally disabled. It ensures that the remaining owners have the financial means to buy out the disabled owner’s share, maintaining business stability. Here’s a detailed look at how it works:

Purpose of Buy-Sell Disability Insurance

  • Business Continuity: Provides funds to purchase the disabled owner’s share, ensuring business continuity.
  • Financial Protection: Protects the business and the disabled owner’s interests during a time of uncertainty.

Requirement of a Formal Buy-Sell Agreement

  • Legal Necessity: A formal buy-sell agreement is required for the policy to be valid.
  • Certification: The policy owner must certify the existence of a buy-sell agreement within one year of the policy issue.

Types of Buy-Sell Agreements

  1. Cross-Purchase Agreement:
    • Structure: Each partner or shareholder owns a policy on each of the other partners or shareholders.
    • Process: Upon disability, the remaining owners receive policy proceeds to buy the disabled owner’s share.
    • MassMutual’s Requirement: A trust must be established for more than two business owners to handle premiums and act as the policyholder/beneficiary.
  2. Entity Purchase Agreement:
    • Structure: The agreement is between the business entity and its owners.
    • Process: The business entity receives the policy proceeds and uses them to purchase the disabled owner’s share.

Recommendation: MassMutual

MassMutual is recommended for buy-sell disability insurance due to its flexibility and reliability:

  • Transferability: Coverage can be transferred to a new business under certain conditions after two years.
  • Conditions for Transfer:
    • The insured must end active full-time employment with the business entity.
    • The insured must be under age 50.
    • The insured should not be totally disabled.


Buy-sell disability insurance is an essential tool for small business owners, providing a financial safety net in the event of an owner’s total disability. It safeguards the business’s continuity and protects all owners’ interests. The existence of a formal buy-sell agreement is critical, and insurers like MassMutual offer flexible, comprehensive coverage options tailored to such needs.

Consult with a business insurance specialist

Request A Quote

Get help or a quote from a licensed financial professional. This service is free of charge.

Contact Us

Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

Scroll to Top