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 sell your share of 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 needed? Is it guaranteed to be there when it’s needed?

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

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

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

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 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 have funds to buy the disabled partner out May not want to share business decisions with the disabled partners family May not want to share business decisions with the disabled partners family

A properly funded buy-sell agreement between owners will address these issues.

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

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

Primary types of buy-sell agreements Cross purchase Cross purchase Entity purchase Entity purchase

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

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

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

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

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

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