Which type of plan is typically used to buy out a partner's business interest in the case of disability?

The correct choice, a disability buy-sell agreement, is specifically designed to address the scenario where a partner in a business may become disabled and unable to maintain their ownership role. This type of plan outlines the terms under which the remaining partners can purchase the disabled partner's share of the business. The intention is to provide financial security and continuity for the business, ensuring that the interests of the partners and the business as a whole are protected.

In such agreements, a life insurance policy or a disability insurance policy may be used as the funding mechanism, allowing the remaining partners to have access to the necessary capital to buy out the incapacitated partner’s interest smoothly and effectively. This arrangement helps to avoid disputes and ensure a smooth transition, making it a practical solution for business continuity.

Other options, while relevant in different contexts, do not serve this specific purpose. For example, key person insurance provides coverage for the loss of a crucial employee, ensuring that the business can survive the loss of an important individual, but it does not specifically address partner buyouts due to disability. General liability insurance protects a business against claims resulting from injuries and damage to people or property, but it is unrelated to ownership transfers. Business interruption insurance compensates for lost income due to unexpected disruptions but