We all know people who have had cancer, a heart attack or a stroke. In fact, every 26 seconds, someone in the U.S. is diagnosed with cancer. Every 29 seconds, someone suffers a coronary event. Every 53 seconds, someone in the U.S. suffers a stroke.
This means your business-owner clients know people who have suffered these conditions as well.
Are you prepared to discuss how the occurrence of one of these illnesses might impact not only your clients personal life plans, but also their business plans?
It is impossible to predict how we might react if diagnosed with a life-threatening condition. Some may choose to return to normalcy as soon as possible, while others may make drastic changes to life and work routines. Unfortunately, some have no choicebecause of their medical circumstances.
Critical illness insurance, which provides a lump-sum benefit amount upon diagnosis of certain medical conditions, benefits different individuals in different ways upon such a diagnosis. The proceeds from a CI policy can provide needed funds for those wanting to change their lifestyles and financial security for those whose medical conditions prevent them from having much choice.
That is the essence of insurance: It funds security and it funds choice.
Following are some business applications where this particular insurance can help.
CI and Buy-Sell Planning: Many insurance professionals are familiar with buy-sell planning in the life insurance context. Business owners enter into a legal agreement requiring the purchase of their ownership interest upon their death. The most common structures for these agreements are the entity purchase (the business buys the interest) and the cross purchase (the co-owners buy the interest). In these scenarios, life insurance proceeds are used to effectuate the agreement.
Firms also can set up an agreement that is triggered and funded upon the diagnosis of a critical illness. Which type of planthe entity or cross purchaseis better for a CI buy-sell agreement? The answer is: It depends.
A cross-purchase agreement using CI insurance has the same benefits as the cross-purchase agreement that uses life insurance. The remaining owners have the funds to purchase the shares without incurring precarious debt. Also, they receive an increase in basis equal to the amount they pay for the shares. All of the owners have the security of knowing that, should they be the one to incur a critical illness, they wont have to accept installment payments or worry that the business will collapse before the purchase price is paid.