What if the greatest financial threat to your family isn’t dying too soon, but surviving an illness or injury without a paycheck? Welcome to the dibrokerWest podcast. I’m Doug Lenhoff and this is the show where we ask the question, but what if I don’t die?

If you’ve watched TV or streaming video lately, you’ve probably seen the commercial about the healthy young father who has a stroke, passes away and fortunately had life insurance. But that story overlooks a far more likely outcome, surviving the stroke with a disability that prevents him from earning an income.

So we ask again, what if I don’t die? Should income protection or disability insurance be one of the first risks that a young father or mother considers?

Welcome back to the dibrokerWest podcast. I’m Doug Lenhoff and today I’m joined by Iain McDonald, Regional Director of Sales with dibrokerWest in Northern California. Iain, welcome.

Doug, great to be here and thanks for having me.

Sure, Iain. You work with advisors on business planning cases. What’s the topic on your mind today?

Today it’s buy-sell planning. It’s one of those conversations that every business owner needs to have and most haven’t finished or in some cases haven’t even started. I want to talk about why it matters, what a strong agreement actually requires and where the disability piece fits in, because that’s where a lot of the plans have a real gap.

OK, let’s start the way you would with a business owner client. How do you open this conversation?

One question does it. If something happened to you tonight, what would happen to your share of the business tomorrow morning? That’s it.

And for a lot of owners, the honest answer is, I’m not really sure. The uncertainty right there is the problem we’re trying to solve.

Well, why is that uncertainty so and so dangerous?

Because it can become very expensive very quickly.

A buy sell agreement isn’t just a legal document sitting in a file. It’s one of the most important continuity and risk management tools a business can have without one or with one that’s vague or outdated, you can end up with conflict over control, disagreement over value and real pressure on cash flow, all at the worst possible moment.

What kinds of events does a buy sell agreement actually cover?

More than most people would realize, death is the obvious one. And it’s what most owners think about first. But a well-structured agreement also covers disability, retirement, divorce and an owner leaving unexpectedly.

Any of those events can create just as much disruption as death. And some are much more likely to occur.

For advisors helping clients build or review a buy sell agreement, where do you start?

Every strong buy-sell agreement needs an answer, needs to answer three questions clearly.

First, what event triggers the buyout? Second, who has the right or the obligation to buy the departing owner’s interest? And third, how will that interest be valued and paid for? If the agreement is vague on any of those three, you’ve got a document that creates the illusion of a plan without actually being one.

All right. Let’s take those one at a time. On the trigger question, is there a standard answer?

Not really. And that’s the point. It needs to be specific to the business and the owners. Death and total disability are typically included. But retirement age, voluntary departure, divorce, bankruptcy, loss of a professional license. Those all need to need to be addressed explicitly.

If the agreement only covers death and leaves everything else ambiguous, it’s incomplete.

So I know you’re not an attorney and we’re not giving legal advice here, but what about valuation? How do businesses typically handle that?

There are three common approaches, a fixed price that gets updated regularly and a formula tied to company performance. Or a formula appraisal process triggered by the buyout event.

Each has its tradeoffs. Fixed prices are simple, but go stale quickly if they aren’t updated. Formulas are more dynamic, but can create disputes over inputs.

Formal appraisals are thorough, but can be slow and expensive at exactly the moment you need speed and clarity. The key is that the agreement spells it out in advance, not when emotions are running high.

OK, walk us through the main structural options advisors should understand.

There are three basic structures. In a cross-purchase agreement, the remaining owners buy the departing owner’s share directly from them or their estate. In an entity purchase agreement, sometimes called a stock redemption, the business itself redeems those shares.

And in a wait and see agreement, the company and the remaining owners decide at the time of the triggering event which party will complete the purchase.

Which one is best?

It depends on the situation. The number of owners, ages, tax considerations, how the business is structured.

Each approach comes with different tax funding and administrative consequences. That’s exactly why advisors need to be involved in the conversation alongside the attorney, not after the document is already drafted.

I see. Well, let’s talk about funding. How do most businesses plan to pay for a buyout?

Life insurance is typically the most efficient way to create liquidity at death. The benefit arrives exactly when the obligation is triggered.

But here’s where a lot of the buy sell plans fall short. Disability buyout coverage. Many ownership transitions are caused by health events, not death.

And if an owner becomes disabled and can no longer run the business, the remaining owners may want or need to buy them out. Without disability buyout coverage, there’s often no funding mechanism for that transition. The obligation is real, but the money isn’t there.

So the plan looks complete on paper, but has a significant hole in it.

That’s exactly right. And it’s a hole that disability buyout coverage is specifically designed to fill.

It’s one of the most overlooked planning tools in the business owner space, and it’s natural conversation for any advisor who is already involved in buy sell planning.

Iain, bottom line, what do you want advisors to take away from this conversation?

A buy sell agreement is not just paperwork. It’s protection.

For ownership control, for the owner’s family, and for the business itself. It protects everyone from being pushed into bad decisions at the worst possible time. And a plan that covers death but doesn’t address disability is only half a plan.

For advisors who want to bring those conversations to their clients?

Reach out to dibrokerWest. Whether you’re helping a client build a new agreement, review an existing one, or identify where their disability funding gap is, we can support conversations with practical expertise and planning guidance. The question, what happens to your share of the business tomorrow morning? That opens the door and we’ll help you walk through it.

Iain McDonald from dibrokerWest, thank you for being on today.

Thanks, Doug. I really enjoyed it.