Final answer:
The incorrect statement about Disability Buy-Sell coverage is that the benefits are generally tax-free for the business; they are usually taxable when the business is the beneficiary.
Step-by-step explanation:
The statement that is not true about Disability Buy-Sell coverage is C) The benefits are generally received tax-free by the business. In reality, if the business is the owner and beneficiary of the policy, the disability buy-out proceeds are typically taxable when received by the business. Disability Buy-Sell insurance is indeed designed to fund a buy-sell agreement in the event of a partner's disability (A), and it is accurate that the premiums for this type of insurance are not tax-deductible for the business (B). Also true is that such coverage facilitates a smooth transition of ownership when a partner becomes disabled (D).
It's essential for businesses with multiple owners to have a buy-sell agreement and the accompanying Disability Buy-Sell insurance so that there is a clear, legally binding method for transferring ownership that provides fair compensation to the disabled partner while also ensuring the continuation and stability of the business.