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Four Ways to Fund a Disability Buy-Sell Plan
| 1 | The business or its owners could accumulate sufficient cash to buy the business interest at an owner's disability. Unfortunately, it could take many years to save the necessary funds, while the full amount may be needed in just a few months or years. | | | | 2 | | Installments from Current Earnings Method |
The purchase price could be paid in installments after an owner's disability. For the remaining active owners, this could mean a drain on business income for years. In addition, payments to the disabled owner would be dependent on future business performance after the owner's disability. | | | | 3 | Assuming that the business could obtain a business loan after an owner's disability, borrowing the purchase price requires that future business income be used to repay the loan PLUS interest. | | | | 4 | Only disability buy-out insurance can guarantee that the cash needed to complete the sale, through either a single sum or installment purchase, will be available exactly when needed, assuming that the business has been accurately valued. |
For many businesses, the best solution to the problems
arising at the permanent disability of an owner
is to use the proceeds from disability buy-out insurance
to purchase the disabled owner's share of the business
for its fair market value. Disclaimer: The information, general principles and conclusions presented are subject to local, state and federal laws and regulations, court cases and any revisions of same. While every care has been taken in the preparation, we are not engaged in providing legal and accounting services. This information should not be used as a substitute for the professional advice of an attorney, accountant, or other qualified professional.
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