Disability Buy Sell Insurance

If one or more business partners If one or more business partners becomes disabled... becomes disabled...

Would they want to sell your share of Would they want to sell your share of the business?the business?

Would they want to buy out the partner?Would they want to buy out the partner? How would the price be determined?How would the price be determined? Where would the money come from?Where would the money come from? Is it guaranteed to be there when it’s Is it guaranteed to be there when it’s

needed?needed?

What are the odds ...What are the odds ...

0

5

10

15

20

25

27 32 37 42 47 52 57Current Age

Occ

urr

ence

per

Th

ou

san

d

Death Disability

Source: 1980 CSO, 1985 CIDB Table B

Consider the likelihood...Consider the likelihood...

Chances of a Disability Lasting 12 Months or Longer (before age 65)

Age 2 Owners 3 Owners 4 Owners 27 26.3% 36.7% 45.7% 37 24.5% 34.5% 43.1% 47 20.7% 29.4% 37.1% 57 12.1% 17.6% 22.8%

1985 Commissioner’s Individual Disability Table B - Equally Weighted 90 Day Elimination Period.

In the event of a disability, there In the event of a disability, there are many issues to be resolvedare many issues to be resolved

The disabled partner may:The disabled partner may: Become a drain on income while not Become a drain on income while not

contributing to the businesscontributing to the business Have different priorities for the business Have different priorities for the business

income and profits and may not want to income and profits and may not want to reinvest profitsreinvest profits

Decide to let spouse or relative take over Decide to let spouse or relative take over their role in the businesstheir role in the business

In the event of a disability, In the event of a disability, there are many issues to be there are many issues to be

resolvedresolved

The healthy partner:The healthy partner: May not be able to pay the disabled May not be able to pay the disabled

partner an income and maintain the partner an income and maintain the businessbusiness

May not have funds to buy the disabled May not have funds to buy the disabled partner outpartner out

May not want to share business decisions May not want to share business decisions with the disabled partners familywith the disabled partners family

A properly fundedA properly funded buy-sell agreement buy-sell agreement

betweenbetweenowners will address these owners will address these

issuesissues..

Funding alternatives...Funding alternatives...

Current cash flowCurrent cash flow Establish a sinking fundEstablish a sinking fund Borrow the fundsBorrow the funds Disability Buy-Out Disability Buy-Out

insuranceinsurance

The most practical solution is...The most practical solution is...

A written agreement A written agreement that specifies when that specifies when and for how much the and for how much the buy-out will take place, buy-out will take place, and...and...

is funded with the right is funded with the right amount of Disability amount of Disability Buy-Out insurance.Buy-Out insurance.

Primary types of buy-sell Primary types of buy-sell agreementsagreements

Cross purchase Cross purchase Entity purchaseEntity purchase

Cross Purchase Agreement...Cross Purchase Agreement...

Buy-SellAgreementBusiness

Owner ABusinessOwner B

PremiumPolicy and DisabilityBenefits on Owner A

Policy and DisabilityBenefits on Owner B

Insurance Company

Entity Purchase Agreement...Entity Purchase Agreement...

Owner B

Owner A

Policies and Disability Benefitson Owner A & B

Premium

Business

Insurance Company

Buy-SellAgreement

Agreement

Buy-Sell

Advantages of an Advantages of an agreement...agreement...

Disabled OwnerDisabled Owner Assures a definite price and Assures a definite price and

buyerbuyer Financial future is no longer Financial future is no longer

contingent on business contingent on business successsuccess

Advantages of an Advantages of an agreement...agreement...

Healthy OwnerHealthy Owner Avoids negotiation of priceAvoids negotiation of price Assures complete and orderly Assures complete and orderly

transfer of ownershiptransfer of ownership Retains control of the businessRetains control of the business Provides continuity and credibility for Provides continuity and credibility for

customers and creditorscustomers and creditors

What will be provide to youWhat will be provide to you Assessment of the current programAssessment of the current program Sample AgreementsSample Agreements Design optionsDesign options Cost Benefit AnalysisCost Benefit Analysis Implementation stepsImplementation steps

All we need is the following All we need is the following Current financial informationCurrent financial information Copy of any current agreements Copy of any current agreements

and/or fundingand/or funding Owner’s date of birth, percentage of Owner’s date of birth, percentage of

ownership and health informationownership and health information