Tennessee Insurance Practice Exam

Which contract allows partners to buy out the interest of a disabled business partner?

1. Buy-sell agreement

2. Business partner insurance

3. Disability buy-sell contract

4. Partnership dissolution agreement

The correct answer is: Disability buy-sell contract

The correct answer pertains to a specific type of contract designed for situations in which a business partner may become disabled and unable to participate in the business. A disability buy-sell contract is tailored to address the financial and operational needs of the remaining partners by providing a mechanism for purchasing the disabled partner's interest in the business. This ensures that the partnership can continue smoothly without the complexities that might arise from a partner's inability to contribute. In the context of this scenario, a disability buy-sell contract typically includes provisions that determine how the valuation of the disabled partner's interest will occur and the terms under which the buyout will take place. This type of agreement not only protects the interests of the active partners but also provides peace of mind by specifying how to handle such situations, which is crucial for business continuity. The other options do not specifically address the scenario of a partner's disability in the same targeted manner. A buy-sell agreement is broader and encompasses various contexts for buyouts, not exclusively for disability. Business partner insurance is often used to fund a buy-sell agreement but does not directly facilitate the buyout process itself. Lastly, a partnership dissolution agreement deals with ending the partnership entirely rather than addressing the needs related to a partner's disability.