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Disability – What Would Happen to Your Business?

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The Disabled Business Owner

Many, if not most, businesses will suffer financial consequences when one of the owners becomes disabled. In the absence of some prior arrangement to keep the business on a profitable footing, the business itself may become a casualty - particularly when the business is owned by only two people and the work load falls entirely on the healthy owner.

 

 

Problems Caused by Disability:

  • Healthy owner(s) may have to shoulder the work load, usually without extra compensation
  • Additional staff may have to be hired
  • Creditors and customers may lose confidence
  • It would be difficult to make major decisions
  • Disabled owner’s spouse or public trustee may become involved
  • Disabled owner may have financial difficulties which would affect the business

 

 

 

The Choices the Owners Must Make:

 

1. Do nothing
Chances are the owners will go through a long period of indecision, frustration, business problems, financial problems and possibly legal action over disagreements

 

2. Dissolve the business
May mean an immediate full or partial investment loss

 

3. Buy out the disabled owner’s share
Seller may have to agree to a depressed purchase price and may have to accept installment payments spread over several years Purchaser must pay the purchase price using 100 cent dollars

 

Where Will the Money Come From?

 

1. Borrow the money

  • Will credit be readily available and will the business have adequate cash flow?
  • What would be the cost?

 

2. Appropriately designed disability income insurance


Advantages of Disability Income Insurance

  • An insured, disability income continuance plan is relatively inexpensive and certain
  • It replaces a potentially costly and unproductive drain on business assets with a known business expense
  • Suppliers and creditors will be reassured because they know that the business owners have had the foresight to plan, and thus avoid a problem that has ruined many businesses
  • It demonstrates sound business management and helps attract better quality employees
  • It can protect key people in addition to owners, thus improving employee relations and morale

 

What Are Your Odds?

When two or more individuals are co-owners in a business, the probability that at least one of them will become disabled is much greater than for a sole proprietor.

 

At age 35, for example, the risk of disability over the next 30 years is 68 percent for the single owner, but jumps to 90 percent for two co-owners, all age 35.

The following table of odds, based on 1964 Commissioners’ Disability Table (U.S.A.), gives the odds that one of the co-owners will be totally disabled three months or more before reaching age 65.

 

 

Odds of at Least One Prolonged Disability Before Age 65
(Expressed as Number of Chances out of 100)

 

Sole Proprietor

Two Owners

Three Owners

Age

Chances

Ages

Chances

Ages

Chances

30
35
40
45
50
55
60

72.3
68.5
63.5
57.3
48.9
37.7
22.1

 

30-30
30-35
35-35
35-40
40-40
40-45
45-45
45-50
50-50
50-55
55-55
55-60
60-60

92.3
91.3
90.1
88.5
86.7
84.4
81.8
81.3
73.9
68.2
61.2
51.5
39.3

30-30-30
30-35-35
35-35-35
30-35-40
35-40-40
35-40-45
40-40-40
40-45-45
45-45-45
40-45-50
45-50-50
50-50-50
45-50-55
55-55-55
50-55-60
55-55-60
55-60-60
60-60-60

97.9
97.3
96.9
96.8
95.8
95.1
95.0
93.3
92.2
92.0
88.9
86.7
86.4
75.8
75.2
69.8
62.2
52.7

 

Why Business Owners Have Different Disability Planning Needs

  • Cash flow requirements much larger
  • Personally responsible for success or failure of business
  • Often key revenue generator(s) of the business
  • Skills or contracts difficult to replace
  • Vested interest in business’s long-term success

 

Contact Us Today

Email us at info@ciccone-mckay.com or call us: 604-688-5262

About Ciccone/Mckay

Ciccone/McKay Financial Group is an independent financial services firm with over 75 years of combined experience in the areas of risk management, wealth management and employee benefits.

 

We specialize in providing insurance and investment solutions for our clients, helping businesses, individuals and families grow, manage, protect and transfer their wealth.


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  • Ciccone/McKay Financial Group
    Suite 360 - 1095 West Pender Street
    Vancouver, British Columbia
    V6E 2M6

    604-688-5262