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Biz Owners: Guarantee Income when sick, injured long-term


We’ve seen how some traditional funding ideas for Buy-Sell Agreements have not met a business owner's need as effectively as they should. Here's a unique way to look at Disability Buy-Sell Funding that may put you in the best possible position.


Case Design:

  • 40-year-old Attorney, 25% Partner in a law firm worth $4 million

  • Current Annual Income $200,000


‘Traditional’ Funding Buy/Sell Agreement:

  • $1 million Term Life Insurance Policy in the event of premature death

  • $1 million Disability Buyout (DBO) Policy with 365-day Elimination Period (EP) & Lump Sum Benefit = $3,780 Annual Premium


‘Unique’ Funding Buy/Sell Agreement:

  • $1 million Disability Buyout (DBO) Policy with a 730-day EP & Lump Sum Benefit = $2,880 Annual Premium

  • $900 annual Savings from ‘Traditional’


NOW ADD

  • $11,230 Monthly Benefit Individual DI policy with 90-day EP and 2-year benefit

  • $752 Annual Premium

  • $148 Total Annual Savings from ‘Traditional’


If the partner gets sick or hurt and cannot work, the Individual Disability Insurance (DI) policy will pay 67.3% of his income (tax free) for up to 2 years.

If the partner recovers from his illness or injury before the 2-year benefit runs out, he will not need to sell his shares of the practice, and he can return to work. Once he gets back to work full-time for 6 months, his Individual DI policy with 2-year benefit is reset and has a full 2-year benefit again.


The new plan design gives the partner more time to recover from the illness or injury – without having to worry about the company Buy-Sell Agreement forcing the firm to buy him out when he has recovery in sight.


If he does not recover after 2 years, the Individual DI policy benefit stops and the DBO policy will pay the partnership $1 million, tax-free, to help buy out his share of the business at current market value.



4 Questions To Stress-Test Your Buy-Sell Agreement:


  1. Does it include the proper amount of life insurance death benefit, keeping up with the value of the corporation?

  2. Does the life insurance policy have the correct beneficiary?

  3. Do you have a disability buy-out policy? This guarantees 60-70% of the partners value in the corporation. Paid-0ut in lump-sum after 2 years.

  4. Does your individual disability policy coincide with your DI buy-out plans?


COMPLETE COMPLIMENTARY FACT-FINDER: https://www.joesimon.solutions/factfinder


 
 
 

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