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Disability Buy Sell Insurance

Disability Buy Sell Insurance. If one or more business partners becomes disabled. Would they want to sell your share of the business? Would they want to buy out the partner? How would the price be determined? Where would the money come from? Is it guaranteed to be there when it’s needed?.

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Disability Buy Sell Insurance

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  1. Disability Buy Sell Insurance

  2. If one or more business partners becomes disabled... • Would they want to sell your share of the business? • Would they want to buy out the partner? • How would the price be determined? • Where would the money come from? • Is it guaranteed to be there when it’s needed?

  3. What are the odds ... Source: 1980 CSO, 1985 CIDB Table B

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

  5. In the event of a disability, there are many issues to be resolved The disabled partner may: • Become a drain on income while not contributing to the business • Have different priorities for the business income and profits and may not want to reinvest profits • Decide to let spouse or relative take over their role in the business

  6. In the event of a disability, there are many issues to be resolved The healthy partner: • May not be able to pay the disabled partner an income and maintain the business • May not have funds to buy the disabled partner out • May not want to share business decisions with the disabled partners family

  7. A properly funded buy-sell agreement betweenowners will address these issues.

  8. Funding alternatives... • Current cash flow • Establish a sinking fund • Borrow the funds • Disability Buy-Out insurance

  9. The most practical solution is... • A written agreement that specifies when and for how much the buy-out will take place, and... • is funded with the right amount of Disability Buy-Out insurance.

  10. Primary types of buy-sell agreements • Cross purchase • Entity purchase

  11. Insurance Company Cross Purchase Agreement... Buy-Sell Agreement Business Owner A Business Owner B Premium Policy and Disability Benefits on Owner B Policy and Disability Benefits on Owner A

  12. Entity Purchase Agreement... Buy-Sell Business Owner A Agreement Buy-Sell Agreement Premium Policies and Disability Benefits on Owner A & B Insurance Company Owner B

  13. Advantages of an agreement... Disabled Owner • Assures a definite price and buyer • Financial future is no longer contingent on business success

  14. Advantages of an agreement... Healthy Owner • Avoids negotiation of price • Assures complete and orderly transfer of ownership • Retains control of the business • Provides continuity and credibility for customers and creditors

  15. What will be provide to you • Assessment of the current program • Sample Agreements • Design options • Cost Benefit Analysis • Implementation steps

  16. All we need is the following • Current financial information • Copy of any current agreements and/or funding • Owner’s date of birth, percentage of ownership and health information

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