Disability Buy Sell Partnership Agreement

Posted: Tue Jan 06, 2009 05:31 am Post Subject:

Life insurance buy-sell agreement, hmmm....its certainly a very new concept to me :shock:

Ins, can you please enlighten me more on this topic? under what circumstances does it work? who are the parties get involved in such arrangements?

Posted: Tue Jan 06, 2009 05:48 am Post Subject:

Well, since the chances of disability are much high for people between their 40s and 50s than the chances of dying, inclusion of a disability insurance would be a great move. However, you need to sketch the buy sell agreement very carefully keeping the following in mind

The Buy Sell Agreement should have the same verbiage as your disability plans to eliminate the chances of conflict between the agreement and your policy.

The disability plans often have a qualifying period after which the benefits actually get started. It can often range from six months to two years. Hence, you need to carefully determine the period when the agreement requires complete buy out.

Determine when and how the policy benefits will be paid to you. Also, clarify whether or not you are allowed to buy back your shares after you recover from the illness.

~Jeremy

Posted: Tue Jan 06, 2009 07:07 am Post Subject:

Yeah, you are required to add the disability income insurance to your buy and sell agreement since the question of disability won't be covered by the life insurance. However, disability insurance has certain disadvantages due to its nature. No benefit is allowed if the policy holder dies or decides to retire early.

Also, in case you recover from the disability after selling your portion of business to the partner, you will find yourself without income, employment and business. Hence you have to make sure that the buy sell agreement includes the clause that will enable you to recover the share you have sold earlier.

One option can be choosing a long period in the agreement before you sell the stake in the business so that you can join the business back after recovering from the illness.

Posted: Wed Jan 07, 2009 11:24 am Post Subject:

Hi yeah, such an agreement is definitely an important part of your business. I guess it is the right thing t have whenever you have multiple owners in a business. It accounts for a meaningful transitional plan in the event one of the partners die or say become disabled.

But, my fiend please remember that for buy-out concerning disability your agreement has to bear -

* A proper definition of the term "permanent disability".

* The stretch of the period of disability prior to the buy-out trigger.

* The disability buy-out insurance has to be depicted as a good source of fund.

Posted: Thu Jan 08, 2009 08:01 am Post Subject:

This is how we understand the Disability Buy Sell Policy:

The Buy Sell Disability Policy determines the "definition of disability" and the amount of time a partner can be disabled (6mos-12mos or 18mos) before a Buy Out is triggered.

When a Buy Out is triggered the payout from the Disability Buy Sell Policy can be a lump sum payout or a 2-5 year payout, again as determined by the Disability Buy Sell Policy used to fund the Disability Buy Sell Agreement.

When a Disability Buy Sell Policy is used to Fund a Disability Buy Sell Agreement the Policy determines for the partnership the "definition of disability" and the amount of time a partner can be disabled before they are bought out. The Disability Buy Sell Policy language becomes a part of the Buy Sell Agreement.

The partners need to determine the value of the business, the amount of time a partner can be disabled before they are bought out and if the disabled partner would be paid in a lump sum or over time, generally 2-5 years.

The opportunity for a partner to buy back their shares in the future if they recover from a disability is a provision the partners need to discuss and add to the agreement. Excellent Point. Thanks!!

Please comment if we have left something out or misunderstand.