The main purpose of disability insurance is to to replace an individual’s income should they be unable to work as a result of either an accident or a sickness.In this article, we will discuss the disability insurance for but-sell policies.
Often, there are several owners for a business. In this situation the owners may enter into buy/sell agreements which will govern how the business is dealt with in the event one or more of the owners dies, becomes disabled or suffers a bankruptcy. Disability buy-sell insurance is designed to assist healthy owners to fund the purchase of a disabled owner’s share of the business. In fact, the likelihood of a long-term disability affecting the business increases as the number of owners in that business increases. Therefore, it is extremely important for business owners to consider disability buy-out insurance as part of their buy-sell program.
When reviewing the provisions of a disability buy-out policy, it is important to consider the following:
a) The Elimination Period or waiting period the person must be disabled before the benefit will be paid. Many insurers use longer Elimination Periods of 12, 18 or 24 months for this type of policy.
b) The definition of disability used in the policy and the definition of disability in the buy-sell agreement must match the definition in the disability policy so that the funds become available when needed to fund the buy-out.
c) The method of benefit payment.
There are several methods that can be used to pay the benefits, including lump sum, installments or combination of the two. The premium for a policy with a lump sum benefit will be higher than the premium for a policy where the benefit is payable in installments.
Insurers have a number of requirements for this type of coverage
a) The business owner must own a minimum percentage interest in the business and When the insured suffers a disability which triggers the buy-out and the benefits are paid under the policy, the coverage terminates.
b) The insured business owner must be employed by the business
A buy-sell agreement must be in place between the owners
a) It must provide for the purchase and sale of shares in the event one of the business owners becomes disabled
b)Specify the purchase price for the shares
Some policies also stipulate that the insured cannot be working in the business organization while the disability buy-out policy pays benefits. If the insured is still affiliated with the company in any capacity, the insurer assumes that they want to maintain their ownership interest and no residual or partial disability provision is included in these policies, due to the implication that the insured has returned to the business and does not want to be bought out.
Any subsequent recovery of the insured has no impact on the availability of the benefit, regardless of whether it is paid as a lump sum or on an installment basis.The maximum benefit provided under a disability buy-out policy is limited to the total value of the business
I hope this information will help. If you need more information of the above subject, please visit my home page at:
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