Disability Income • Critical Illness Insurance • Long Term Care • Life Insurance

Disability Buy-Sell

Often, Business Owners have addressed the issue of a partner's death and have secured life insurance to fund a Buy-Sell Agreement. But what happens if is the partner becomes disabled for an extended period of time?

In its simplest terms, a buy-out agreement with a disability provision is designed to ensure that a business or professional practice can continue after the total disability of one of the owners or partners forces that owner to stop working. The agreement obligates the remaining owners or the business to purchase the disabled owner’s interest and stipulates the formula by which the “fair market value” price will be determined.

With an owner-employee no longer contributing to the business, payment of their salary may become very problematic. Often, a temporary replacement may be required; now two salaries must be met.

Self-funded options to paying a disabled owner may include a general reliance upon cash-on-hand, creating a sinking fund, making installment payments or borrowing the funds. None of these may be reasonable when cash flow has been reduced.

An insurance funded Disability Buy-Out may prove to be the most economical, dependable and effective way to carry out the provisions of the agreement. The financial burden has been shifted to the insurance company and away from any of the self-funded options discussed above.

Advantages to the active owners and partners include full ownership and only they will participate in the future growth of the company. There will be no competition for the purchase of the disabled owner’s interest by an outsider and there will be continuity of management for customers, creditors and employees.

The primary motivations to purchase an insurance funded buy-out are two-fold:

  1. The disabled owner needs assurances that his/her family interests are protected
  2. The healthy owner needs to know that the disability of one partner will not threaten the livelihood of sustaining owners.

NOTE: If your business has not yet secured life insurance to fund a buy-out in the event of a business owner or partner’s death, we can assist with this insurance placement as well.

There is no fee for my services

Paul SuPrise, CLU, LTCP
770 Nuangola Road • Mountain Top, PA 18707-9507
570-868-6871 • Fax 570-868-6872
paul@sickpayplans.com
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