Four Ways to Fund a Disability Buy-Sell Plan for your Business

Four Ways to Fund a Disability Buy-Sell Plan:

Cash Method

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.

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.

Loan Method 

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.

Insured Method 

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. Let us know if you need help with your buy-sell plan or any other business matters.