DISABILITY BUY-OUT (Form 3100)

Underwritten & Issued by Berkshire Life Insurance Company of America
(a wholly owned subsidiary of Guardian Life Insurance Company of America)

Your client's partner's disability could cost them if their buy-sell agreement has a page missing. Few business owners realize that, as far as their business is concerned, there is no real difference between actual "physical" death, and the "living and economic" death caused by an owner's lengthy disability. Yet chances are that their buy-sell agreement lacks a disability buy-sell provision.

Advantages to a healthy owner

• The healthy owner maintains 100% ownership and continuity of management.
• There is a smooth transfer of interest because conditions of the buyout, the purchase price, and the funding method have been predetermined.
• The firm's continued existence is assured and profits will not be depleted.
• Benefits are received income tax free.

Advantages to disabled owner

• He is assured of a buyer at a predetermined and fair price
• He receives cash for his share of the business.
• There is freedom from the risk of future company losses.
• Family members won't have to become involved.

CONSIDER THE ODDS The odds are high that either you or one of your business associates will suffer a disability of 1 year or more, before age 65. (see table) No. in Group 1 2 3 4 5 Age 25 11.67% 21.98% 31.09% 39.13% 46.23% 30 11.34% 21.40% 30.31% 38.22% 45.22% 35 10.98% 20.75% 29.45% 37.19% 44.09% 40 10.50% 19.90% 28.31% 35.84% 42.58% 45 9.83% 18.70% 26.69% 33.90% 40.40% 50 8.83% 16.88% 24.21% 30.90% 37.00% 55 7.24% 13.96% 20.19% 25.97% 31.33% 60 4.61% 9.02% 13.21% 17.22% 21.04% Source: 1985 Commissioner's Disability Table (male, based on 30 day elimination period) combined with the 1980 Commissioner's Standard Ordinary Mortality Table. DISABILITY BUYOUT TAX FACTS Premiums paid by partnerships and corporations are not deductible, but benefits are received tax free (IRC 265; IRC 104 (a)(c)). A shareholder's interest in a corp. is a capital asset. Hence whether purchased by the corp. or a third party, the purchaser of the interest cannot deduct his payment for Federal income tax purposes. When an installment buyout takes more than one year, a minimum interest rate is set by the IRS, and must be paid by the purchaser.

• Lump Sum - If the lump sum method is chosen, Berkshire will pay the lump sum purchase amount, up to the maximum reimbursement in the policy. In lieu of a lump sum, the benefit can be paid in guaranteed installments over a period of ten years or less.
• Monthly Funding- Under this method, the company will pay the actual monthly purchase price amount up to the monthly indemnity limit.
• Down Payment - The company will pay a lump sum equal to the actual down payment, not to exceed the down payment benefit shown in the policy. Thereafter, the company will pay the actual monthly purchase amount, but not more than the policy's monthly indemnity limit.

Total disability means that:

1. due to injury or sickness, the insured is unable to perform the substantial and material duties of his/her occupation and
2. the injury of sickness requires the regular attendance of a physician, and
3. the insured is not at work for the business