Minimizing Corporate Risk with Buy/Sell Disability Insurance
Although it feels to some of us that we are, by necessity or not, going to work for the rest of our lives, most Americans will retire by the age of 70. Now that number is definitely increasing due to a multitude of factors (improvement in healthcare, increased longevity, lack of retirement planning confidence, etc.) But eventually, you will cease working and you business owners out there will either close-up shop or pass the reigns to a successor. Succession planning is vital in maintaining business continuity and balance when an owner decides to finally hang it up and enter a life of retirement.
But how do you avoid financial chaos during a regime change and the partial or entire sale of a thriving business? You employ a thoughtfully constructed, fully-funded buy/sell agreement, outlining the procedural turnover of the business to one or more individuals. This is the natural and proper action as long as life runs smoothly and expected. But we all know that life can throw unexpected curveballs like the permanent disablement of the business owner, forcing a premature buy-out of the business.
In most instances of unforeseen disability, successors won’t have the capital necessary to fully-fund the purchase of the disabled owner’s shares. Chaos ensues and the business suffers or defaults. The solution is buy/sell disability insurance. A comprehensive buy/sell DI policy will properly fund a purchase agreement at the time of the permanent disability of an owner through a lump sum or structured monthly benefit to sufficiently address the monetary needs of the buy/sell contract. Benefits usually begin after a common elimination period of at least 365 days.
Most domestic disability insurance carriers offer proper “own-occupation” disability policies designed to indemnify buy/sell agreements, but there are always shortcomings and fiduciary dangers that insurance advisors must heed.
Traditional DI insurance companies have limitations that will preclude some of your clients from being properly covered. Age limitations are common. Most policies will either employ declining benefits once an insured person reaches the age of 60 or will completely cease to offer any benefits to clients of that age or older. This is a great problem considering that persons over the age of 60 are more susceptible to disablement than their younger counterparts.
Benefit limitations in general are also common amongst domestic carriers. Rarely will a traditional buy/sell DI policy be able to provide funding over $1,000,000 even though the buy-out value of a company may be much higher. Excess or high-limit buy/sell coverage is frequently required.
Petersen International offers solutions to those unfortunate predicaments. Buy/sell insurance is available through PIU up to $100,000,000 in excess of the lower limits provided by traditional DI carriers. Furthermore, the benefits offered by PIU don’t dissolve once an insured person reaches the age of 60 or 65, and initial policies can be written on business owners over the age of 70. PIU is also able to offer buy/sell disability insurance to persons declined by domestic carriers due to sub-standard or impaired risk such as health, occupation and avocation issues.
Please contact Petersen International at (800) 345-8816 to learn more about our succession planning solutions and how we can minimize your clients’ corporate risk with unique insurance platforms.