An Advisors' Guide to Excess & Surplus Disability Insurance

Avoid a Buy-Out Exposure That Can Cripple a Business

Posted Wed, Aug, 11th, 2021
By Exceptional Risk Advisors

A majority of privately held business owners have the majority of their wealth tied up in their businesses.  Protecting their equity from the event of a disability to either themselves or to one of their partners becomes a clear focal point as the value of their business rises.

Many business owners utilize buy-sell agreements to establish a succession plan in the event a partner dies or becomes disabled.  These agreements are terrific tools to provide security for a business owner's equity, however, they can also establish contractual obligations that can burden the remaining partners. 

Exceptional clients rely on sophisticated advisors to protect them from financial burdens that could cripple a business.  For business owners with Buy-Sell Disability funding requirements, a supplemental Disability Buy-Sell Insurance policy can be issued to reduce the business burden to repurchase a disabled partners equity beyond what is available from domestic carriers.  

To help illustrate, we recently were asked to insure a commodities firm whose business was rapidly expanding.  As a result of the rapid growth, the CEO's share value increased by 250% since the last buy-sell agreement.  It was determined by the board of directors that the disability buy-out exposure would cripple the company should the CEO become disabled.  We alleviated the risk by designing a disability buy-out plan providing the additional benefits required to protect the organization from the $33 million disability exposure.  Click here to download the case study.

In the U.S. disability markets, advisors can secure up to $2 million in buy-sell disability insurance.  However, when an owner's equity value exceeds that $2 million mark, there is a void that requires a specialized approach.  For these titans of business, sophisticated advisors utilize the Excess Lines Market to design buy-sell disability solutions with the capacity needed to fully fund the disability buy-out obligation should a partner become permanently disabled.  The Excess Lines Market can provide benefits exceeding $100 million per person, allowing business owners to preserve both their wealth and their partners' wealth.

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