IULs, Disability Insurance, and the Art of Awareness

May is National Disability Insurance Awareness Month, DIAM. It, coincidentally, is also ALS Awareness Month, Correct Your Posture Month, National Stroke Awareness Month, National Motorcycle Awareness Month, National Brain Cancer and Brain Tumor Awareness Month, National Moving Month and Older Americans Month.

Shall We Add One More?

If you ask me, we get a little carried away with all the National Awarenesses, but having no control over it, I suppose we ought to embrace it. The mentioning of all the latter awareness’s above is that they all may cause one to become disabled. So, while risking continued awareness fatigue, perhaps it is prudent to celebrate May as National Recommitment Month, and take another look at Disability Insurance.

Disability Breaks the Income Cycle

If you had a machine that printed money, wouldn’t you want to insure it? The idea being that our incomes are our biggest assets needing protection and if we were suddenly to become disabled, breaking the machine, it would have been wise for us to have protected it with insurance. We are far more likely to become disabled then we are to die. If you’re a business owner, what happens to your business if you become disabled? Often a buy-sell agreement has been drafted when the business is set up but rarely are these agreements funded.

Funding A Buy-Sell Agreement For Death and Disability

Let’s talk about something a little different today though, still related to DI. Let’s talk about a disability buyout in coordination with a “deathtime” buy-sell agreement. Many business owners have been approached on the importance of funding their buy-sell agreement with life insurance, but far fewer have been approached about funding a disability buyout. What if we could take care of both with one policy? By utilizing a cash value life insurance policy, like an Index Universal Life, with a guaranteed death benefit out to age 95 or 100, we can accomplish this.

A properly designed IUL will accumulate cash value over time and provide a death benefit that can be used to fund the death time buy-sell agreement. Many IUL’s now have the ability to dial in a guarantee on the death benefit anywhere up to age 100! In the event that that business owner becomes disabled (far more likely than dying prematurely remember), the cash value in the policy can be used to either partially, or fully fund a disability buy-out of that business partner. Adding a waiver of premium rider to the policy will allow the business to free up some additional cash that can be used to complete the buyout. As long as the policy doesn’t lapse, the death benefit after the partner dies, can also be used to complete the buyout if it hasn’t done so already.

Choosing the right carrier and the right policy is the key to a successful buy-sell or buyout funding plan. At Life Insurance Specialists, we are here to help with just that type of design and can help our business owner clients navigate the process.