Certified Financial Consultant (CFC) Practice Exam

Who is primarily responsible for the financial aspect of a disability buy-sell agreement?

1. The business partners

2. The insurance company

3. The employed legal representative

4. The designated beneficiaries

The correct answer is: The business partners

The primary responsibility for the financial aspect of a disability buy-sell agreement rests with the business partners involved in the agreement. In this context, a disability buy-sell agreement is designed to ensure that if one partner becomes disabled and cannot fulfill their role in the business, the remaining partners have a structured way to buy out the disabled partner's interest. The business partners are responsible for determining how the agreement is funded, typically through insurance policies. They negotiate the terms of the agreement, which includes the valuation of the business, funding mechanisms, and how the proceeds will be used. Their understanding of the business, its financial standing, and the specific needs of each partner are vital in crafting a plan that works effectively for all parties involved. While the insurance company plays a crucial role in providing the coverage for the buy-sell agreement, and the employed legal representative assists in drafting the contract, neither can make financial decisions on behalf of the business partners. The designated beneficiaries typically receive the benefits of the insurance payout but do not have responsibility for the financial aspects of managing such an agreement. Thus, the business partners are central to the arrangement, making them the ones primarily accountable for its financial components.