Financial Preparedness, Insurance

The often-missing key piece of funding buy-sell agreements: disability insurance

April 30, 2015

It’s not uncommon for medical practices to use buy-sell agreements to cover such potentially game-changing situations as the death, retirement or termination of a partner.

However, a fourth situation — the disability of a partner — is sometimes overlooked and thus many buy-sell agreements don’t adequately address the possibility of one partner becoming unable to continue working due to a disabling accident or illness. But disability is more common than you might think. Statistically, out of a four-person practice, one physician will eventually become disabled.1

Being fair to all partners involved is a common problem when a disability occurs within a partnership. Here’s a not unlikely scenario: A certain group practice pays expenses and physicians’ salaries, then splits the net profits among the partners. Suddenly, one partner becomes disabled and unable to contribute to the practice or its bottom line. Other partners are left to do all of that physician’s work, then split the profits at the end of the year with the disabled partner. Is it fair that a person who didn’t do any of the work gets an equal share of the profits? Since all parties put money and energy into building the business, how do you handle this situation correctly? The answer to this possible future dilemma is simple: structure your buy-sell agreement to cover the potential disability of a partner and fund it through buy-sell disability income insurance.2

When a partner becomes disabled many issues suddenly must be addressed. For example, will the partner be able to return to work and if so when? Who will cover the patient load and for how long? What if the disability is permanent? Will the disabled physician receive compensation?

Those are questions that need answering prior to setting up the agreement. That’s why every practice should have serious discussions with an experienced advisor concerning the subject of disability buy-sell.

A disability buy-sell arrangement is good for all concerned parties. Knowing there will be funds to buy out a disabled partner makes it less stressful for the practice and eliminates the concern about where the money will come from. It benefits the disabled physician, knowing the practice will have the money available for the buyout. The practice is able to continue on with minimal interruption and find a replacement physician, if needed, without worrying about the disabled physician’s potential interest in someday returning.

If you’re not already working with a financial advisor, a good resource is the Physicians Financial Partners program. To locate a partner near you, call 877-210-4015, or visit

Council for Disability Awareness,

2 Consult your legal counsel about how buy-sell arrangements may work in your state.

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