Disability Insurance and Buy-Sell Agreements

{3:12 minutes to read} Disability insurance is the forgotten insurance. Most of the time when people think about insurance they think about:

Life insurance;

Car insurance;

Property insurance;

Liability insurance.

The Achilles heel of many financial plans, however, is not insuring against a disability. We like to think of disability insurance as insuring your most valuable asset, yourself. In other words, you are insuring the goose, not the golden eggs.

In business, it is very common for business co-owners to set up agreements called buy-sell agreements. This agreement spells out what happens if someone dies, becomes disabled, retires, or there is a severance in employment.

With a buy-sell agreement, if something happens to partner A, partner B or the businesses itself would get money to buy out the interest of partner A. These buy-sell agreements also outline what happens to the business in the event a business owner is disabled.

Today I wanted to highlight and focus in on what we call disability buyout insurance. Unlike regular disability insurance, which will pay an income to a disabled individual, this type of insurance is designed to help fund that buy-sell agreement. For example, if Partner A and Partner B owned equal shares of a business worth $2 million dollars, and Partner A became disabled, the policy would pay money either in a lump sum or over a period years. In this scenario, Partner A would be able to buy out Partner B’s interest. Partner A would get their equity out of the business and Partner B would own all of the outstanding shares of the business.

Disability buyout insurance is critically important for another reason. If Partner A became disabled, the one thing they might still want (or need) is income from the business. So, Partner B’s obligation would not only be to have the business continue paying Partner A’s income if there was no regular disability insurance, but would also have to fund the buy-sell agreement and buy them out. Without proper insurance, Partner A’s disability could cause the demise of Partner B’s business because he/she wouldn’t have enough cash flow to meet the obligation to buy Partner A out and continue their income.

We feel it’s imperative for everyone to understand the importance of insuring the goose both against personal disability so you have proper income, and to fund your disability buyout or your buy-sell agreement. Disability buyout insurance products are specifically geared for that purpose.

If you’d like to learn more about our great disability buyout insurance programs, please give us a call.

Registered Representative offering Securities through American Portfolios Financial Services, Inc. (APFS) Member FINRA/SIPC. Investment Advisory Services are offered through G&G Planning Concepts, Inc. which is not affiliated with APFS. Strategic Wealth Advisors Network and Gassman Financial Group are not affiliated with APFS.

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