Great Ideas for Unique Insurance Sales Opportunities: Replacement of Inadequate Coverage
In the arena of inadequate disability coverage, we often use words such as “replacement, rescue, and supplement”. Replacement coverage must be prescribed carefully, for it is not intended to replace coverage provided by other insurers except for a bona fide use that represents a sound improvement to an insured’s present coverage.
Take the case of two business partners, who at age 59 and 60 are bound by a Buy/Sell Agreement. As partners they are obligated to buy out the business interest of the other partner in the event of death or disability. The firm has prospered over the years and is now worth $4,000,000 with each partner’s share worth $2,000,000. When the company was young, the business value was a modest $200,000, but even so, the partners recognized the importance for funding and secured Disability Buy/Sell Insurance.
Over the course of time, the business thrived and the insurance was increased to provide a benefit amount of $1,000,000 per partner. Today, this amount of insurance falls short of the Buy/Sell price by $1,000,000; not a comfortable check to write! But wait. It gets worse. Due to their ages, over the next few years the plan’s benefits start reducing by 20% ($200,000) per year until age 65 at which time the plan terminates.
At a younger age, this “far-off” exposure created no personal alarm, for they intended to retire at age 65. Their attitudes have changed and they now plan to work to age 67 or 70. But the Disability Buy/Sell Insurance continues down its eroding path. What can be done?