Inadequate Buy-Sell

“May is Disability Insurance Awareness Month,” is an Industry-wide endeavor aimed at arousing people’s awareness of their needs for disability insurance in the event they don’t have any in force, and also an awareness of the INADEQUACY OF THEIR COVERAGE.
In this arena of inadequate coverage we use words that are uncommon in your practice like, “Replacement, Rescue, and Supplement.” These terms must be carefully used for they are not intended to legally or ethically replace, supplement or rescue coverage provided by other Insurers, but for the bonafide use of insurances that represent a sound useful improvement to an Insured’s present coverage.
Take the case of a Baby Boomer , age 59 who is involved in a BUY-SELL Agreement. As a partner, he is obligated to buy out the business interest of another partner in the event of permanent total disability. The firm has prospered and is now worth $4,000,000. His share of the buyout would be $1,333,333.
When the company was new the Buy Out would have been a liability of only $100,000, but even so Disability Buy-Sell was purchased. It was increased over time and now provides a benefit of $400,000. This falls short of the purchase price by $933,333, not a comfortable check to write! But wait. It gets worse, for next year the plan’s benefits start reducing by (20%) $80,000 per year over the subsequent 5 year period until it drops to zero and then it terminates.
At a younger age this “far-off” exposure created no personal alarm for he intended to retire at age 60 or 62. His attitude has changed and he plans to work to age 67 or 70, or maybe age 72. But the disability buy-sell continues down its eroding path. What can be done?

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