When business partners plan for the future, preparing for the unexpected is key.
While many understand the importance of addressing the untimely death of a partner, the financial disruption caused by long-term disability often receives less attention.
Yet, a disability-triggered buyout can be just as challenging to manage.
Imagine this scenario: A partner in a successful multi-million-dollar company becomes permanently disabled. Who takes responsibility for their stake, and what are the financial implications? This was the reality faced by three business partners in a recent case.
The Problem
Their buy-sell agreement outlined a clear path for the repurchase of equity in case of death — a $15 million payout funded through life insurance for each partner. However, the agreement also required repurchase of equity after 12 months of total disability, valued at $15 million per partner. Unlike the death scenario, there was no funding strategy in place to fulfill this requirement. This oversight left the business exposed to substantial financial risk.
Without a plan, the partners faced tough choices: take on a debt of $15 million, or scramble for alternative funding. Neither option guaranteed the smooth transition needed to protect their business.
A Proactive Solution
To address this gap, we crafted tailored buy-sell disability insurance policies for the partners. With a lump-sum benefit triggered after a 12-month waiting period, these policies ensured that the buy-sell agreement was executed seamlessly, safeguarding both the company’s financial stability and the equity interests of all parties involved. In this case, the premium for the policy amounted to $27,600 — a small price for peace of mind.
Why Act Now
Integrating disability buyout funding into a succession plan is as critical as providing life insurance. Without it, a long-term disability could jeopardize both the affected partner’s financial security and the company’s future. As demonstrated, a well-structured strategy can prevent significant disruptions, ensuring continuity and honoring all partners’ stakes.
Planning ahead removes the risk of a crisis. Take the time now to explore options for disability buyout coverage with a trusted insurance specialist. It’s an investment in stability and resilience — keys to a thriving business.
Contact your Disability Insurance Specialist for more information or assistance with a case.