An underused disability policy can be hugely important for advisors looking to protect their business clients.
A disability buy-sell agreement can be one of the most important policies advisors can sell to new business owners.
Jorge Ramos, senior estate planning consultant at The McClelland Financial Group at Assante Capital Management Ltd, got a lesson on how important disability insurance is for business owners 20 years ago, when he was starting his career. He knew a group of four guys that started an IT firm that took off right away.
“So what do they do, they buy nice cars. They’re living life. Doesn’t one of them crash it and becomes permanently disabled,” he said. “They’re not even a year into the business so they hadn’t really thought through the insurance. Now one partner is disabled and as a business, the four of them, they’re friends, they said we’re not going to buy him out. First of all we can’t afford to, secondly we want to keep paying him his income.”
A buy=sell agreement could have solved the problem.
“Think about that, that’s a burden on your company,” he said. “Even though you like the guy – he’s a friend, I get that – it’s a burden on the company. If they had a buy-sell disability policy they would have bought him out, here’s a lump sum check and everything is perfect.”
This is a situation that clients and advisors alike rarely think about.
“Those are the things that we don’t think about,” he said. “When you have four partners, the probability of one of them becoming disabled before retirement is almost 100 per cent. It’s about 95 per cent. It’s crazy. The probability of being disabled before 65 is much higher than dying before 65. It’s something that gets overlooked unfortunately.”
And advisors should urge clients to act sooner rather than later.
“A lot of business owners only think about it once the business has been established but by that may be too late,” Ramos said. “This one story was only a year into the business. People say once we’re established, once we have the cash then we’ll think about it, but it may be too late.”
Jorge Ramos, senior estate planning consultant at The McClelland Financial Group at Assante Capital Management Ltd, got a lesson on how important disability insurance is for business owners 20 years ago, when he was starting his career. He knew a group of four guys that started an IT firm that took off right away.
“So what do they do, they buy nice cars. They’re living life. Doesn’t one of them crash it and becomes permanently disabled,” he said. “They’re not even a year into the business so they hadn’t really thought through the insurance. Now one partner is disabled and as a business, the four of them, they’re friends, they said we’re not going to buy him out. First of all we can’t afford to, secondly we want to keep paying him his income.”
A buy=sell agreement could have solved the problem.
“Think about that, that’s a burden on your company,” he said. “Even though you like the guy – he’s a friend, I get that – it’s a burden on the company. If they had a buy-sell disability policy they would have bought him out, here’s a lump sum check and everything is perfect.”
This is a situation that clients and advisors alike rarely think about.
“Those are the things that we don’t think about,” he said. “When you have four partners, the probability of one of them becoming disabled before retirement is almost 100 per cent. It’s about 95 per cent. It’s crazy. The probability of being disabled before 65 is much higher than dying before 65. It’s something that gets overlooked unfortunately.”
And advisors should urge clients to act sooner rather than later.
“A lot of business owners only think about it once the business has been established but by that may be too late,” Ramos said. “This one story was only a year into the business. People say once we’re established, once we have the cash then we’ll think about it, but it may be too late.”
