Buy Sell agreement
Buy Sell agreement from insurance perspective. Why you should consider the disability and critical illnesses scenarios in your Buy-Sell agreement?
Most of the buy-sell agreements are funded by term insurance which covers death and total permanent disability (TPD). TPD is considered as a very
severe disability and by its definitions, you will agree with me.
TOTAL AND PERMANENT DISABILITY (TPD) DEFINITIONS
“Total and Permanent Disability” is defined as
1. Disability which is total and permanent and persists continuously for at least
six (6) months, with the Life Assured or any party of the joint lives who is first incapable of performing any work or engaging in any occupation or profession to earn or obtain wages, compensation or profit, from the time when the disability started.
2. Total and irrecoverable:
(a) Loss of the sight of both eyes;
(b) Loss of sight of one (1) eye and loss by severance or loss of use of one (1)
limb at or above the ankle or wrist;
(c) Loss by severance or loss of use of:
i. Both hands at or above the wrists;
ii. Both feet at or above the ankles;
iii. One (1) hand at or above the wrist and one (1) foot at or above the ankle.
In recent years, TPD definitions had Enhanced to include Activities of Daily Living (ADL) as follow:
As a result of disease, illness or injury, the Life Assured becomes totally and
permanently unable to perform at least three (3) of the following six (6)
“Activities of Daily Living” even with the aid of special equipment, and always
to require physical assistance of another person throughout the physical
activity for at least six (6) continuous months.
(a) Transferring: the ability to move from a bed to an upright chair or wheelchair and vice versa
(b) Mobility: the ability to move indoors from room to room on level surfaces
(c) Toileting: the ability to use the lavatory or otherwise manage bowel and bladder functions so as to maintain a satisfactory level of personal hygiene
(d) Dressing: the ability to put on, take off, secure and unfasten all garments and as appropriate, any braces, artificial limbs or other surgical appliances
(e) Washing: the ability to wash in the bath or shower (including getting into and out of the bath or shower) or wash satisfactorily by any other means
(f) Feeding: the ability to feed oneself once food has been prepared and made available.
The diagnosis above must be confirmed and certified by a Registered Medical
Practitioner.
If the Activities of Daily Living or ADL sounds very familiar to you, it is because our Eldershield is a severe disability insurance and the benefit pay-out is based on insured not able to perform 2 or 3 out of 6 ADL.
What are the conditions that can cause a person not able to perform 2 or 3 ADL?
- Strokes
- Dementia
With our aging population and sedentary lifestyle, many of us are at risks of heart disease and dementia. We can’t simply ignore these scenarios any more in our buy-sell agreement.
If you have funded your buy-sell agreement with insurance, you should look into
your policy contract to see whether your TPD definitions include the ADL definition.
What are the potential problems when one of the partners suffers stroke or dementia and there is no pay-out from insurance?
What are the potential problems when one of the partners suffers critical illnesses
like cancer and there is no pay-out from insurance?
It is good to know that the maximum coverage for TPD ranges from $2 million to $6.5 million. And the maximum coverage for critical illnesses rider attaching to a
Term insurance is $1 million to $3.6 million. For example, you may get a Term insurance for $10 million but maximum TPD coverage could be $6.5 million and critical illnesses coverage is $3.6 million.
In conclusion, it is always a good idea to include Enhanced TPD and critical illnesses coverage for your keyman insurance. In your buy-sell agreement, you could structure a partial buyout in the event one of the partners suffers a stroke, dementia or cancer. This way, the partner who is not well could focus on full recovery and take care of his or her family. In the event, that the partner don’t recover and died, there will be death benefit pay-out from the balance sum assured.
I can assist you in your keyman insurance and Buy-Sell agreement, feel free to contact David Phuah @ 9765 6788 for a discussion without obligation.
Most of the buy-sell agreements are funded by term insurance which covers death and total permanent disability (TPD). TPD is considered as a very
severe disability and by its definitions, you will agree with me.
TOTAL AND PERMANENT DISABILITY (TPD) DEFINITIONS
“Total and Permanent Disability” is defined as
1. Disability which is total and permanent and persists continuously for at least
six (6) months, with the Life Assured or any party of the joint lives who is first incapable of performing any work or engaging in any occupation or profession to earn or obtain wages, compensation or profit, from the time when the disability started.
2. Total and irrecoverable:
(a) Loss of the sight of both eyes;
(b) Loss of sight of one (1) eye and loss by severance or loss of use of one (1)
limb at or above the ankle or wrist;
(c) Loss by severance or loss of use of:
i. Both hands at or above the wrists;
ii. Both feet at or above the ankles;
iii. One (1) hand at or above the wrist and one (1) foot at or above the ankle.
In recent years, TPD definitions had Enhanced to include Activities of Daily Living (ADL) as follow:
As a result of disease, illness or injury, the Life Assured becomes totally and
permanently unable to perform at least three (3) of the following six (6)
“Activities of Daily Living” even with the aid of special equipment, and always
to require physical assistance of another person throughout the physical
activity for at least six (6) continuous months.
(a) Transferring: the ability to move from a bed to an upright chair or wheelchair and vice versa
(b) Mobility: the ability to move indoors from room to room on level surfaces
(c) Toileting: the ability to use the lavatory or otherwise manage bowel and bladder functions so as to maintain a satisfactory level of personal hygiene
(d) Dressing: the ability to put on, take off, secure and unfasten all garments and as appropriate, any braces, artificial limbs or other surgical appliances
(e) Washing: the ability to wash in the bath or shower (including getting into and out of the bath or shower) or wash satisfactorily by any other means
(f) Feeding: the ability to feed oneself once food has been prepared and made available.
The diagnosis above must be confirmed and certified by a Registered Medical
Practitioner.
If the Activities of Daily Living or ADL sounds very familiar to you, it is because our Eldershield is a severe disability insurance and the benefit pay-out is based on insured not able to perform 2 or 3 out of 6 ADL.
What are the conditions that can cause a person not able to perform 2 or 3 ADL?
- Strokes
- Dementia
With our aging population and sedentary lifestyle, many of us are at risks of heart disease and dementia. We can’t simply ignore these scenarios any more in our buy-sell agreement.
If you have funded your buy-sell agreement with insurance, you should look into
your policy contract to see whether your TPD definitions include the ADL definition.
What are the potential problems when one of the partners suffers stroke or dementia and there is no pay-out from insurance?
- The disabled partner continues to draw a salary and share in the profit of the company but could not actively get involve in the daily operations. There will be loss of productivity and revenue within the business.
- The other partners may have to hire another person to take over the disabled partner’s responsibilities, thereby incurring additional costs for hiring, training and salary.
- The company growth strategy maybe in a limbo as the disabled partner may become conservative and want to protect his or her interest.
- The disabled partner may remain in the same conditions for many years. There is no exit strategy and it can be a very frustrating situation for partners.
What are the potential problems when one of the partners suffers critical illnesses
like cancer and there is no pay-out from insurance?
- The problems are similar to above except that critical period is one year to five years for treatment and recovery of cancer.
It is good to know that the maximum coverage for TPD ranges from $2 million to $6.5 million. And the maximum coverage for critical illnesses rider attaching to a
Term insurance is $1 million to $3.6 million. For example, you may get a Term insurance for $10 million but maximum TPD coverage could be $6.5 million and critical illnesses coverage is $3.6 million.
In conclusion, it is always a good idea to include Enhanced TPD and critical illnesses coverage for your keyman insurance. In your buy-sell agreement, you could structure a partial buyout in the event one of the partners suffers a stroke, dementia or cancer. This way, the partner who is not well could focus on full recovery and take care of his or her family. In the event, that the partner don’t recover and died, there will be death benefit pay-out from the balance sum assured.
I can assist you in your keyman insurance and Buy-Sell agreement, feel free to contact David Phuah @ 9765 6788 for a discussion without obligation.