Ultra successful clients - corporations, business owners, private equity firms and ESOPs - manage complex financial ecosystems where commitments extend far beyond revenue and balance sheets. Hidden within contracts and agreements are obligations that can quietly jeopardize the stability of an organization. These risks often sit unnoticed until a disabling event turns them into urgent financial liabilities.
Sophisticated clients depend on equally sophisticated advisors to recognize these vulnerabilities before they become costly surprises. Below are five scenarios where proactive disability planning is essential.
1. When a Key Person Becomes Disabled
Key person requirements are common in acquisition agreements, yet many advisors only recommend life insurance. This leaves a significant gap since executives are far more likely to suffer a disability during their career. One private equity firm learned this firsthand when a portfolio company CEO suffered a stroke. The firm had key person life insurance but no disability protection, forcing them to absorb the financial fallout. After reevaluating, they began requiring both life and disability coverage, securing $6 million of key person disability protection for their next acquisition.
Click Here to Learn More About Key Person Disability Insurance
2. Disability in a Buy-Sell Agreement
Buy-sell agreements often plan well for death but overlook disability. Three partners in a New Jersey construction business faced this reality when their agreement required buying out a disabled partner’s $15 million stake — with no funding mechanism in place. The solution was customized buy-sell disability insurance, offering an own-occupation lump-sum benefit that protected both the company and the disabled partner without disrupting operations.
Download Buy-Sell Disability Case Study of Large Commodities Firm
3. Disability of a Borrower
Loan obligations don’t pause when an entrepreneur becomes disabled. A dermatologist expanding her practice secured a $2.3 million loan, and the lender required disability coverage to protect the balance. She implemented a reducing loan-indemnification disability policy matching her five-year amortization schedule, ensuring the debt could be serviced even if she couldn’t work.
4. Disability During Severance
Severance agreements often promise continued income, but if the executive becomes disabled after employment ends, the liability can skyrocket. A regional bank discovered this when four departing executives lost access to group LTD coverage. One executive’s severance promise created a potential $2.64 million exposure. A severance disability policy transferred that risk, protecting both the bank and the executive.
5. Disability of an ESOP Shareholder
ESOPs carry repurchase obligations triggered by death, retirement or disability. While many companies insure key shareholders for life, disability risk is frequently overlooked. From guaranteed loans to rising account values, a disabling event can create an immediate and sizable repurchase burden. Guaranteed-issue ESOP disability programs offer lump-sum benefits to fund these obligations and preserve the long-term stability of the plan.
Download ESOP Case Study of Construction Company
Preparing for the Silent Saboteur
While death is planned for, disability is often ignored, yet it is far more likely to disrupt a business. Advisors who recognize this silent threat, and who partner with specialized carriers to address it, protect their clients from obligations that could otherwise surface at the worst possible moment.
Ultra successful clients expect foresight. The time to uncover hidden risks is now, long before disability turns a dormant contract clause into a financial crisis.
This post was adapted from the published article as seen in Insurance News Net magazine written by Sean McNiff, VP of Business Development at Exceptional Risk Advisors. You can read the full article here.
