62. Which of the following contracts enables the businessowner who becomes disabled to transfer the business to a new owner and receive payment?
Answer: C
Disability buy-sell policy enables the transfer of business ownership upon disability.
A disability buy-sell policy allows a business owner who becomes disabled to transfer ownership of the business to a new owner while receiving payment for their share. This type of insurance is specifically designed to ensure that the business can continue to operate smoothly despite the owner's incapacity.
A) Key-employee disability insurance.
Key-employee disability insurance provides financial support to a business when a key employee becomes disabled, but it does not facilitate the transfer of ownership of the business. This policy protects the business from loss due to the absence of vital personnel, which is different from transferring ownership rights.
B) Business overhead expense policy.
A business overhead expense policy covers the ongoing operational expenses of a business when the owner is disabled but does not address the transfer of ownership. This policy primarily focuses on maintaining the business's financial obligations instead of facilitating a sale or ownership transfer.
C) Disability buy-sell policy.
A disability buy-sell policy is specifically designed to enable a business owner to transfer their interest in the business to another party upon becoming disabled. This policy ensures that the owner receives payment for their share, allowing for a smooth transition and financial security for both parties involved.
D) Disability reducing term policy.
A disability reducing term policy typically provides coverage that decreases over time, often in relation to a specific financial obligation, such as a loan. However, it does not provide a mechanism for transferring business ownership or ensuring payment to the disabled owner, making it unsuitable for this context.
Conclusion
The disability buy-sell policy is the only option that directly addresses the need for a business owner to transfer their business upon becoming disabled while also ensuring they receive payment. All other options fail to provide this essential function, focusing instead on protecting the business or covering expenses without facilitating ownership transition.