Disability Buy Sell Funding In The Professional and Corporate Market Place “The Forgotten Risk”

Disability Buy Sell Funding In The Professional and Corporate Market Place “The Forgotten Risk” Anna Banh Senior Sales Consultant

Just Imagine You Received This Phone Call! › One of your best client’s Tom, has been in a serious car crash. › It Looks like he may never be able to work again! › Have you covered off all Tom’s disability needs? 3 3

What are the chances of recovery? Ages 6 months 1 year 18 months 2 years 35 58% 34% 27% 23% 45 44% 23% 18% 15% 55 27% 11% 9% 8% The chance of recovery given a period of time already disabled and the age at which disability begins. 4 Source: 1964 Commissioner’s Disability Table.

Why Disability Buy Sell Funding? › What does a partnership buy-sell agreement stipulate? – Death – Disability – Disagreement › Have you considered what would happen if you didn’t die? › What if you survive, but are totally disabled? What happens…? 5

Key Questions Your Clients Need To Answer…. › What does your partnership agreement state in the event of disability for a shareholder / partner? › Where does the funding come from? › If there is no specific clause for disability should there be? › Financial Impact to the company? 6

The Business Reality of a Disabled Partner › Most businesses will suffer financial consequences when one of the owners becomes disabled. › In the absence of some prior arrangement to keep the business on profitable footing, the business itself may become a casualty - particularly when the business is owned by only two people and the work load falls entirely on the healthy owner. 7

Partnership Concerns – Problems Caused by a Disability 1. Healthy owner(s) may have to shoulder the extra work load, usually without extra compensation 2. Additional staff may have to be hired 3. Creditors and customers may lose confidence 4. Difficult to make major decisions 5. Disabled owner’s spouse or public trustee may become involved 6. Disabled owner may have financial difficulties which would affect the business 7. Disabled owner mind set can change from: ( lets grow the company to how do I get my money out now ) We have the Solution…….. Disability Buy Sell Funding 8

The Choices the Owners must make  Do Nothing  Chances are the owners will go through a long period of indecision, frustration, business problems, financial problems and possibly legal action over disagreements.  Dissolve the Business – May mean an immediate, full or partial investment loss. Buyout the Disabled Owner  – Seller may have to agree to a depressed purchase price and may have to accept installment payments spread over several years. – Purchaser must pay the purchase price using 100 cent dollars, not insurance benefit.  Borrow the Money – Will credit be readily available and will the business have adequate cash flow? – What would be the cost?  Properly Designed Disability Insurance – Disability Income & Buy Sell Protection 9

RBC Disability Buy Out › Available to occupation classes 4A, 3A, 2A › Ages 18 – 60 › Up to $2,000,000 of funding- Flex or Monthly Instalments › 360, 540, 720 Elimination Periods › 24 Hour Coverage for Accident and Sickness › Non Cancellable and Conditionally Renewable › Coverage is renewable until the earlier of: – Insured’s 64th birthday – Date the insured ceases active full-time employment with the business for any reason other then total disability – Date the aggregate benefit limit is paid › Reimbursement based on the value of the insured partners shares at claim time 10

Case Study Construction Company with 2 Partners: › Male: Sales/Corporate Mgmt (50% Ownership) › Male: Oversees Projects/Operations (50% Ownership) Challenges: › Life Insurance in place for agreement › Significant Business Loans on new equipment › Buy Sell agreement had trigger clause after 365 days › No Funding mechanism in place or mentioned in agreement › Company worth 2-3 million dollars › Agreement not completed 11

Case Study Solution: › After our review the clients realized the exposure they had › Need for Proper Income Protection ( WLRP for Owners and 2 key management staff ) › Business Loan Protection put in place to help cover off loan costs. › Solicited Financials before underwriting apps › Recommended Flex Funding Option › Business Insurance Option permitted Growth › Disability Buy / Sell - Corporate Entity Arrangment: › 360 days EP - Flex Funding Option - $750K › $2,017 Combined mo. premium 12

Advantages of Disability Buy Sell Protection • An insured, disability income continuance plan is relatively inexpensive and certain. • It replaces a potentially costly and unproductive drain on business assets with a known business expense. • It protects key people in addition to owners, thus improving employee relations and morale. • Suppliers / Creditors will be reassured. • Complements the Life Insurance Protection. 13

Ideal Candidates › Successful stable businesses- 3+yrs › Good net worth- minimum $50,000 › 2 - 5 lives (partners/shareholders) – Can also cover 6 – 10 lives and min. 5% ownership › Small manufacturing companies, Professionals partnerships- Law, Accounting Medical, Computer, Engineering, Pharmaceutical, Construction, › Companies that have funded agreements with Life Insurance. › Watch for Arms Length ( ie Husband, Wife) 14

Next Steps › Most Accountants / Clients do not know this product exists › Most Partnerships have not identified this Risk › Check your in force Life Buy-sell cases to see if you can quote the DI Buy-sell › Include a process when doing partnership reviews, to include DI Buy-Sell 15

Disability Buy Sell Funding In The Professional and Corporate Market Place “The Forgotten Risk”