The June Coffee Break focuses on businesses and premium deductions that are available when funding an Asset Care policy. To learn more about this opportunity, check out our June broadcast of Coffee Break by following this link or clicking on the Coffee Break image to the right.

And, last week’s Fridays with Fisher, I shared a little about the Section 162 Executive Bonus.  I want to stay in the mindset this week and share an idea with you that you might not have considered – using Asset Care is part of a buy-sell agreement.

OneAmerica has an outstanding resource that talks about buy-sell agreements, funding them, the types, as well as a fact finder.  Keep in mind, the guidebook is life insurance focused, but it also can serve as a good resource for a planning conversation with your small and/or family owned business owner clients.

Consider this scenario – the founder of a company agrees to pass his company to his son who he has worked with should to shoulder for 20 years.  The sales agreement calls for the company to be purchased over a 10 year period of time by the son through installment payments.  Each year, more of the business is controlled by the son and less is controlled by the father (as planned).  The payments for the transfer come from earnings.

What would happen to the execution of this agreement if a couple years into the installment sale the father (still a majority owner) suffers from a medical condition that is severe and debilitating? 

How would it impact the business?  The father was still active in the business during the sale.

How would it impact the cash flow?  And, would it spill over and impact the ability of the son to make the remaining installment payments as called for in the agreement?

Could they borrow money?  Or, leverage assets?  What options do they have?

One thing that is often included in buy-sell agreements are disability income clauses.  As you might recall, most disability income policies cease offering benefits at age 65.  When you couple this with business owners, particularly small and family owned businesses, being actively involved in the operation well beyond age 65 – you have a gap opening in protection of the business.

While a long term care insurance doesn’t provide the same coverage or require the low threshold to qualify for benefits as a disability income insurance policy, it can serve as a firewall for a healthcare event that could negatively impact a family-owned business.

Let’s look at this situation again and assume that there is a long term care policy in place as part of their agreement.  When the father requires care, the policy would be used to fund it reducing the financial impact to the operation of the business.

In a small and/or family owned business.  Everything ends up being put on the table when a major event occurs.  A buy-sell agreement insulated from health risks via insurance makes sense – at any age.

If you have an active or prospective case where business funding a long term care policy is involved, get in touch with us and we can discuss scenarios and solutions with you. On top of that, you gain access to our Advanced Markets team!

Just a reminder about another strategy that has caught fire – the million dollar annuity strategy. Learn more about it at  https://fridayswithfisher.com/million-dollar-annuity/. 

My “big ask” of you for the million dollar annuity strategy is to identify 3 or 4 annuity owners 75 or older who might be viable candidates for our leverage strategy then give us a call.