Triple Threat to Biz Owners

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  • If you suddenly became disabled and couldn’t run your business, how would you pay your utilities, your lease or employees’ salaries until you returned to work? Would you have to spend your hard-earned savings, your retirement assets or even your child’s college education funds to make ends meet at home?
  • 6 What is your most valuable asset?
  • 8 If you were too sick or hurt to work, there are a few questions you should be able to answer: Would your income stop or be reduced? How much money would you and your family need to maintain your current lifestyle? Where would this money come from? How soon and for how long would you need it? If you use your retirement savings today, what would you retire on?
  • While employer-paid benefits are valuable, the typical Group Long- Term Disability (LTD) benefit is only about 60% of regular income. And that benefit is usually taxable. An individual disability income insurance policy can help cover a greater percentage of your employees’ income.
  • If you suddenly became disabled and couldn’t run your business, how would you pay your utilities, your lease or employees’ salaries until you returned to work? Would you have to spend your hard-earned savings, your retirement assets or even your child’s college education funds to make ends meet at home?
  • If you suddenly became disabled and couldn’t run your business, how would you pay your utilities, your lease or employees’ salaries until you returned to work? Would you have to spend your hard-earned savings, your retirement assets or even your child’s college education funds to make ends meet at home? These unpaid expenses could force you to close your doors – PERMANENTLY! When you’re not there to generate business you can lose customers, staff and even your business. You work hard to control the direction of your business. Unless you’ve planned ahead, an accident could quickly turn into a financial tragedy.
  • Making assumptions about your client’s age and number of owners or key employees, point out the chances of disability most appropriate for the client’s situation. An example would be: “Let’s assume you and your partner are both 37 years old. The chance of one of you becoming disabled is 62.4 percent. As the numbers indicate, the odds aren’t in your favor.”
  • So, how can you ensure the financial obligations of your business are met and your doors remain open? Let’s look at possible sources of income should you be unable to work: Business Partner - How long is your business partner(s) willing or able to operate without your contribution? Put yourself in his or her shoes... if your partner couldn’t work, how long could you carry him or her? Creditors - What financial institution would lend money to someone when his or her ability to repay is questionable? Liquidate Assets - Are you prepared to liquidate your assets? What if you recover and want to return to work? Will you have the equipment to re-open? If you do want to liquidate, can you expect to get fair market value or would it be a “fire” sale? Personal savings -If you compare your monthly business expenses with your personal savings, chances are, these dollars wouldn’t go far. And, do you really want to use personal savings to meet business obligations? What about your original plans for that money... vacations, college education for the kids, retirement? Sell the business - Long-term would this be the best solution? Would you be able to hold out for its full market value?
  • One solution -- disability overhead expense insurance. Overhead expense insurance can provide payment at the time you need it most. Your business expenses are taken care of so you can concentrate on recuperating and returning to the business you’ve worked so hard to establish. You aren’t at the mercy of your creditors and their interest rates. Your savings and investment plans aren’t jeopardized. Your business retains it’s value. You may avoid foreclosure or forced liquidation. Plus, premiums are tax-deductible.
  • Some of these questions are (read slide) A properly funded buy-sell agreement between owners will address the issues we just discussed.
  • When you or one of your partners become disabled, there are many issues to resolve. For instance: Because the disabled owner is not contributing to the operation of the business, there is likely to be a drain on profits. Unless you’ve agreed before-hand, you and your partner may have different priorities for the business. Will you reinvest profits or distribute them? Are you prepared to let your spouse or another relative step into the business if you become disabled? Or, if your partner is disabled, are you prepared to work with his or her spouse, relatives or an outsider? The healthy partner(s) may not be able to pay the disabled partner an income and still maintain the business. He or she may also not have the funds to buy out the disabled partner and be forced to go into business with someone they don’t know.
  • Let’s take a look at the advantages of establishing a buy-sell agreement . A buy-sell agreement helps assure the continuation of the business in the event an owner dies or becomes disabled as defined in the policy that underlies the agreement. For the owner who dies or becomes disabled, the agreement: Determines a definite price and buyer, and Assures his or her financial future or the financial future of his or her family is no longer contingent on business For the healthy owner(s), the agreement helps: Avoid negotiation of the sale price Assure a complete and orderly transfer of ownership Avoid the transfer of the business to an outsider Provide continuity and credibility for customers and creditors. Establishing a buy-sell agreement is the first step toward planning for the continuation of your business. However, unless the agreement is funded, it won’t perform as you intended.
  • What are the funding alternatives? Current cash flow - if the business is suffering due to the loss of an owner, will the dollars be available? Establish a sinking fund - what if a disability happened next month? A sinking fund wouldn’t begin to cover the cost. Borrow the funds - who will lend money to a business with a disabled owner? If you do get a loan, could the business generate enough to pay back the loan? Disability Buy-Out insurance - you receive the funds when you need them and guarantees a cost for the coverage
  • The most practical solution is to plan ahead by establishing a written agreement that specifies when and at what price the buy-out will take place, plus where the money will come from.
  • Given this information, I’ll be able to provide you with an assessment of your current situation, a clear presentation of options, a cost benefit analysis, and information on tax consequences as well as the steps you need to take to implement the program. Where do we go from here? To assist you with the design of a program I need a copy of current financial statements, a copy of any buy-sell agreements and funding, and documentation of the business valuation.
  • At Principal Life Insurance Company, taking care of business means providing flexible, affordable disability insurance solutions for individuals and business owners. To qualify for the 20% Multi-Life Discount, all you need are three or more individuals with a common employer who purchase any combination of Principal Life Individual Disability insurance policies. Individual disability insurance helps you and your business survive financially if disability strikes. Plus, a 20% discount on all policies may be available if three or more individuals in your company purchase individual disability insurance coverage. Ask your financial representative for details, and find out how Principal Life’s disability insurance solutions can make taking care of business easy for you!
  • Triple Threat to Biz Owners

    1. 1. Principal Life Insurance CompanyProtect Yourself AgainstDisability’s Triple Threat
    2. 2. While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it isintended to provide general information about the subject matter covered and is provided with the understanding that The Principal is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult withappropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.Insurance issued by Principal Life Insurance Company a member of the Principal Financial Group®, Des Moines, IA 50392, www.principal.com
    3. 3. Disability’s Triple ThreatBusiness owners face a triple threat• Keeping a roof over your head• Keeping your business’ door open• Keeping your business investment intact
    4. 4. Keeping a roof over your head – income protection Individual Disability Income insurance
    5. 5. Keeping a roof over your headYou insure your home and your car, but what about your income? Income $4,216,000 Home $294,3000 Car $31,501
    6. 6. Keeping a roof over your head• What would happen to your income?• How would you maintain your lifestyle?• Where would the money come from to pay for bills?• What happens to your retirement savings and other financial goals?• Do you have Group Long-Term Disability insurance in place? Are the benefits taxable?
    7. 7. Can your employees live on 42% of their Keeping aincome? your head roof over Few could live on 42% of their income.Chart based on $5,000 gross monthly income ($60,000 annually), with60% Group Long Term Disability program, assuming a 30% tax bracketfor Federal, State and FICA.
    8. 8. Keeping a roof over your headIndividual Disability Income (DI) insurancePersonal income protection so you can:• Provide for your family if you become too sick or hurt to work• Maintain your lifestyle without draining savings or business profits• Protect a higher level of your income (in the event you have Group LTD insurance)
    9. 9. Keeping your business’ door open – risk management Overhead Expense Insurance
    10. 10. Keeping your business’ door open• If you are unable to work, would your business be able to keep the doors open?• How would business expenses get paid (rent, salaries, utilities, etc....)?• Would you have to turn clients away?
    11. 11. Keeping your business’ door open Chances of a disability lasting 12 months or longer (before age 65) Age 2 Owners 3 Owners 4 Owners 27 26.3”% 36.7% 45.7% 37 24.5% 34.5% 43.1% 47 20.7% 29.4% 37.1% 57 21.1% 17.6% 22.8%Source: Commissioner’s Individual Disability Table B “EquallyWeighted 90 day Elimination Period”
    12. 12. Keeping your business’ door openPossible income sources• Business partner• Creditors• Liquidate assets• Personal savings• Sell the business
    13. 13. Keeping your business’ door openWith Overhead Expense insurance:• Fixed business expenses are reimbursed• You don’t rely on creditors• Your savings and investment plans aren’t jeopardized• Avoid foreclosure or liquidation• Premiums are tax-deductible
    14. 14. Keeping your business investment intact – succession planning Disability Buy-Out Insurance
    15. 15. Keeping your business investment intactIf you or one of your partners is disabled …• Would you want to sell your share of the business?• Would you want to buy out your partner?• How would the price be determined?• Where would the money come from?• Is it guaranteed to be there when it’s needed?
    16. 16. Keeping your business investment intactThe disabled partner may: The healthy partner may not:• Become a drain on income • Be able to pay the disabled while not contributing to the partner an income and business maintain the business• Have different priorities for • Have funds to buy the the business income and profits and may not want to disabled partner out reinvest profits • Want to share business• Decide to let spouse or decisions with the disabled relative take over their role in partners family the business
    17. 17. Keeping your business investment intact Establishing a buy-sell agreementDisabled owner advantages Healthy owner(s) advantages• Assures a definite price • Avoids negotiation of price and buyer • Assures complete and orderly• Financial future is no transfer of ownership longer contingent on the business’s success • Retains control of the business • Provides continuity and credibility for customers and creditors
    18. 18. Keeping your business investment intactFunding alternatives• Current cash flow• Establish a sinking fund• Borrow the funds• Disability Buy-Out insurance
    19. 19. Keeping your business investment intactDisability Buy-Out Insurance• A written agreement that specifies when and for how much the buy-out will take place, and...• is funded with the right amount of Disability Buy-Out insurance.
    20. 20. Keeping your business investment intactWhat we will provide to you• Assessment of your current program• Design options• Cost Benefit Analysis• Tax consequences• Implementation steps
    21. 21. Get peace of mind … at a multi-life discount OE + DI + DI = 20% discount A business owner purchases OE and employees purchase their own DI = 20% discount! DBO + DBO + DI = 20% discount Two business owners purchase DBO policies and pay premiums for an employee’s DI policy = 20% discount! DI + DI + DI = 20% discount Three individuals with a common employer purchase DI policies = 20% discount!OE = Overhead Expense | DBO = Disability Buy-Out | DI = Individual Disability Income
    22. 22. Contact my office for more information Name Title Phone | E-mail Name Title Phone | E-mail Insurance issued by Principal Life Insurance Company a member of the Principal Financial Group®, Des Moines, IA 50392, www.principal.comDI 2221 | #5057072009

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