Protect Your Business Interests
Probability of disability in relation to probability of death during your working years
Surprisingly, many business owners overlook Disability Income Insurance as a key tool for business succession planning. Yet, the risk of becoming too sick or injured to work, before retirement age, is much more prevalent than death. How would you handle maintaining your business interests if you became physically or mentally handicapped? As a business owner, you have even more at stake.
Help protect your business with a DI buy-sell policy
The same rationale for using a life insurance policy to fund a buy-sell agreement upon death applies to using a disability policy to fund a buy-sell agreement upon total disability (whether permanent or temporary). Even when the business has sufficient capital, insurance may still be the best way to fund the DI buy-sell agreement.
In a partnership of two 35-year-olds, the odds of a long (three months or more) disability striking one of them before they turn 65 is 75%.
Benefits of a disability buy-sell agreement
The benefits of a well-crafted and properly funded disability buy-sell agreement include:
Benefits for the active business owners
• Acquire the business interest of the disabled owner at a fair price.
• Maintain ownership and control.
• Receive tax-free benefits.
• Smooth transition of ownership.
• Relinquish the decision of when the definition of total disability is met to a third party.
Benefits for the disabled business owner
• Receives the proceeds for the sale of his/her ownership in the business.
• Needs to worry less about future business value fluctuations.
• Taxed only on the gain from the sale of the business and generally at more attractive gains rates.
Benefits for the business
• Full funding may be available when needed.
• Interest charges on installment of the buy-out may be avoided.
• No lien, credit restriction, or drain on profits from loans to fund the buy-sell.
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