In a previous era a rock-n-roll singer named Michael Lee Aday performed under the stage name Meat Loaf. One of his popular musical laments culminated in the words, I want you, I need you/ But there ain’t no way I’m ever gonna love you/ Now don’t be sad/ ‘Cause two out of three ain’t bad. Maybe so, Michael Lee, but the fact is that when it comes to buy-sell agreements two out of three may not be good enough.
A well-drafted business transition agreement should address the need for a buy-out upon the occurrence of any number of triggering events – the most common being the premature death, or the retirement, or the extended disability, of an owner. A well-funded permanent life insurance policy can provide cash in the event of the first two contingencies – i.e. a death benefit on the one hand and a substantial cash reserve on the other. Both serving as a down payment on the occasion of the anticipated retirement of an owner down the road.
As to the third, funding a buyout when a participating owner suffers a disability may have become a little easier and a little more economical with the opportunity for receipt of an accelerated death benefit made possible with a long-term care rider. Typically the long-term care rider provides for monthly installments when the insured has a qualifying incident, usually an incident that results in an inability to perform two of the basic activities that are apart of day-to-day living. A buy-out in the event of disability is often made in payments under an installment note. When an LTC rider is relied upon to fund such an arrangement, the terms of the buy-out can be coordinated to match the policy both with regard to the medical description of the event accelerating the death benefit and to the monthly amount due and payable.
The owners of every closely-held company should have a properly drafted and executed buy-sell agreement.
If they do not, they go to bed every night not knowing who they will be in business with on the morrow. Implementation of a buy-sell will eventually require the assistance of legal counsel, but the Life Sales team can work with you and your business-owning clients to get them thinking in the proper direction on the issues involved before they start incurring legal fees. We can also explain the triple funding advantage available of permanent coverage.
One website resource reports, “Meat Loaf is said to have cheated death on numerous occasions: crashing in a car which rolled over, being struck on the head with a shot during a shot put event, jumping off a stage during a concert and breaking both of his legs, . . . and his private jet had to make an emergency landing at London’s Stansted Airport after his plane’s forward landing gear failed.” If you have any clients, even non-business owners, of his ilk, call us about how an LTC rider on a life policy might give them coverage more comprehensively befitting their lifestyle.
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