Business partners usually have a variety of talents required to make the business successful. Usually partners delineate areas of focus and responsibility. One may be the idea person, another the rainmaker, someone else may be essential to keeping the business running smoothly. But when it comes to evaluating and protecting against the business risks of uncertainty, they are often in need of an advisor.
As an advisor, you may be very familiar with using life insurance to fund a buy-sell agreement that anticipates the death of one of the owners. However, even experienced advisors may not have considered using a buy-sell agreement to cover the possibility that an owner becomes disabled. Disability buy-sell insurance provides a slightly different benefit than individual DI. Rather than the disabled person receiving the benefit, the other parties to the agreement receive a benefit that is used to purchase the disabled person’s share of the business.
Protects the interests of each owner
Establishing a buy-sell agreement is an essential part of planning for the business to continue if one of the owners is no longer involved. Using disability buy-sell insurance to fund part of the agreement protects the interests of all parties. The owner facing the disability is interested in protecting his or her income. All the owners are interested in maintaining the profitability and growth of the company. The disability insurance benefit provides the capital for the other partners to buy part of the business. The proceeds from the sale of the business gives the disabled owner some financial security.
Provides certainty at a time of uncertainty
When facing a disability, the business owner has several non-business issues to deal with. The other owners must address immediate issues, reassign roles and make plans to ensure the business continues. This is not the time for partners to negotiate the price to buy out the disabled owner. With a buy-sell agreement in place, the purchase price is already established and agreed to by all parties.
Protects the ongoing concern of the business
The benefit from disability buy-sell insurance provides a way to fund the buy-sell agreement. Without it, the business owners would have fund the purchase with a loan, sell business assets, sell personal assets, or even file bankruptcy. These alternatives are unnecessary if disability buy-sell insurance provides the capital.
Approaching business owners
A buy-sell agreement is a legal agreement. Consider engaging an attorney with expertise in small business matters to partner with when working in this market. Identify your current clients who have business partners. If you’ve already recommended a buy-sell agreement funded with a life insurance policy, suggest amending the agreement to include disability as a condition funded with disability insurance. When introducing buy-sell initially, establish the value of a buy-sell agreement that provides for death and disability using life insurance and disability buy-sell insurance.
How Can A Buy-Sell Agreement Help a Business Owner? from Morgan Stanley provides an excellent explanation of buy-sell agreements that is suitable to share with clients. For more about disability buy-sell insurance, view this short video. DIS offers several disability buy-sell insurance products. Call us for a quote or just to learn more.