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Disability Buy Sell Insurance PowerPoint PPT Presentation


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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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Disability Buy Sell Insurance


If one or more business partners becomes disabled l.jpg

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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What are the odds ...

Source: 1980 CSO, 1985 CIDB Table B


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Consider the likelihood...

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


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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


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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


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


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Funding alternatives...

  • Current cash flow

  • Establish a sinking fund

  • Borrow the funds

  • Disability Buy-Out insurance


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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.


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Primary types of buy-sell agreements

  • Cross purchase

  • Entity purchase


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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


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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


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Advantages of an agreement...

Disabled Owner

  • Assures a definite price and buyer

  • Financial future is no longer contingent on business success


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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


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What will be provide to you

  • Assessment of the current program

  • Sample Agreements

  • Design options

  • Cost Benefit Analysis

  • Implementation steps


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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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