Partnership Buy-Sell disability insurance posted the fastest premium growth of any individual disability product in 2023. The segment grew 14 percent year over year, outpacing Non-Cancelable Disability at 8 percent and Guaranteed Renewable at 3 percent. Michael Turner, an account executive at Gen Re, reported the data in May.
The growth happened in a corner of the disability insurance market most buyers do not recognize by name. Buy-Sell policies account for less than 1 percent of new sales premium and policies. They also account for 39 percent of total new benefit amounts. That math reflects the size of the obligation each policy funds: the buyout of a disabled partner’s interest in a multi-owner practice.
A practice owner shopping for disability insurance for business owners usually starts with personal income coverage. Buy-Sell sits one rung further out. The policy funds what the practice owes the disabled owner’s partners or estate, not the owner’s lost income.
A Buy-Sell agreement is a contract between partners or shareholders in a practice. The agreement obliges the remaining partners to purchase the disabled partner’s equity stake at a price set in the document. Without insurance to fund the purchase, the remaining partners have to come up with cash, take on debt, or restructure the practice. The disabled partner waits for the buyout while the practice operates around the absence.
The Buy-Sell disability policy converts the obligation into an insurance claim. The carrier pays a defined benefit when total disability is established. The benefit goes to the remaining partners as the purchase money, or to a trust that holds the buyout funds. The disabled partner receives the agreed equity price within the policy’s defined timeline rather than waiting on the remaining partners’ liquidity.
The 14 percent growth in Buy-Sell premium happened against slower growth in the rest of the market. Non-Cancelable Disability premium grew 8 percent in 2023. Guaranteed Renewable grew 3 percent. Buy-Sell came from a smaller starting base but moved fastest.
The data does not explain why. Two factors plausibly drove the demand. Partnership equity has appreciated faster than the cash positions of the remaining partners. The math of a self-funded buyout no longer works without external capital. Either pressure makes a Buy-Sell policy more attractive at issue.
Buy-Sell Policies Carry Bigger Face Amounts Than the Rest of the Market
The 39 percent of total new benefit amounts figure tells the math of the segment in one number. Less than one percent of new policies. Less than one percent of premium. Thirty-nine percent of total benefit value. The average Buy-Sell policy is sized to a partnership equity stake, not to a person’s monthly income.
A practice owner whose stake in a multi-owner practice is worth two million dollars needs a policy that pays two million dollars when triggered. A personal disability income policy is sized to a fraction of monthly compensation. The two products solve fundamentally different math problems. They are not interchangeable, and one does not substitute for the other in the partnership’s books.
Carriers underwriting Buy-Sell policies look at the partnership agreement to set the policy face amount. The carrier wants to see the agreement’s valuation method, the trigger conditions for the buyout obligation, and the funding mechanism the agreement names. The policy is written to match the obligation the agreement creates. The structure links the policy to the partnership contract rather than to the insured individual’s resume.
Buy-Sell Sits Beside Personal Disability Income, Not Inside It
A practice owner who buys personal disability income coverage protects the owner’s salary. The owner who adds a Buy-Sell policy is buying a different protection. Liquidity at the partnership level, paid to the remaining partners or to a trust that holds the buyout. The two policies operate on separate timelines and pay different parties.
The personal policy pays the owner monthly while the owner cannot work. The Buy-Sell policy pays a lump sum to the remaining partners when total disability is confirmed under the policy’s terms. The lump sum is the price the agreement set for the disabled partner’s stake. The disabled partner receives that price either directly or through the buyout mechanism.
Two coverage decisions, one disability event, two separate financial questions. Personal income coverage tells the owner whether the family’s monthly expenses get paid. Buy-Sell coverage tells the practice whether the owner’s equity gets liquidated cleanly. Neither answer makes the other unnecessary.
The 14 percent premium growth in Buy-Sell during 2023 reflects buyers paying attention to a question many partnership agreements asked them earlier than the data suggests. A multi-owner practice with a Buy-Sell agreement in the partnership contract has the obligation already. The decision is whether to fund the obligation with insurance or to assume the partners will find the liquidity another way at the moment the buyout is triggered.
The data does not name the carriers, the geographies, or the types of practices driving the growth. The pattern suggests that more multi-owner practices are arriving at the same answer. Insurance is cheaper than the alternatives, and the alternatives become hard to assemble at the moment the buyout obligation triggers.
A practice owner whose partnership agreement contains a buyout clause should be able to point at the funding mechanism. If the answer is cash on hand, the math of the partnership’s balance sheet decides whether the answer holds. If the answer is debt, the partners borrow against an asset whose value just dropped because one of them cannot work. If the answer is insurance, the policy pays at the moment the obligation triggers, in the amount the agreement names.