Title: The Importance of Disability Buy-Out Insurance | LifeInsure
Headings: The Importance of Disability Buy-Out Insurance
The Importance of Disability Buy-Out Insurance
Richard Reich
The Disability Buy-Out Should be Mandatory
One Product with Many Solutions
Incorporating the Disability Buy-Out into the Buy-Sell Agreement
Tax Implications to Consider
Consider the Options

Content: How long can the business continue to operate with the disabled business owner? In addition to the security of protecting vital financial resources for health-related or other expenses, disability buy-out insurance funds give the disabled owner peace of mind that his or her investment in the small business will be reclaimed: Where is my ROI for founding and growing the business? Why would I let remaining business owners run the business using my money? How can I recover my investment capital? Incorporating the Disability Buy-Out into the Buy-Sell Agreement
In the entity purchase buy-sell agreement, all business stakeholders enter into an arrangement with the small business, providing that the small business will purchase, and the disabled owner will sell, their stake in the small business to the business entity in the event of their total disability. The business will own and will be the loss payee of the disability buy-out insurance policy on each business owner. Tax Implications to Consider
Irrespective of the type of buy-sell agreement, the insurance premiums paid for the disability buy-out insurance by the small business owner or by the business itself are not deductible, although the disability benefits are collected tax-free. Although unique to the cross purchase agreement and the trusteed cross purchase agreement, if the small business bonuses the premium amount to the business owners as extra compensation, the premiums paid are deductible to the business as compensation expenses, but the insurance premiums must be incorporated in the business owner’s income. The disabled owner may then acknowledge a capital gain on the difference between his/her basis in the small business and the amount he/she is compensated upon the sale of his/her stake.