Can a startup company offer health insurance to salaried executives and not to hourly workers?

January 17, 2016

I’m going to break this question down into a few bite size chunks because there are a few different ways this can go. The current guidance to this question falls to IRS notice 2011-1 spelling out non-discrimination language in the Affordable Care Act. Here’s the rub. The provisions have been put on hold until the IRS comes out with new guidance regarding what is to be considered a highly compensated employee for the purposes of non-discrimination testing on a company health insurance plan. Even when the guidance comes from the IRS, any changes will not take place for at least 6 months after issuance of the guidance. This new guidance has not been released by the IRS up to this point.

Can a startup offer health insurance to salaried executives and not to hourly employees if those employees are considered full time?

No. This goes to vendor level specifications in their contract provisions and underwriting guidelines. There isn’t a health insurance vendor that I am aware of nationwide, and i’ve dealt with all the majors, who don’t spell out what is to be considered an eligible employee in their contract and in their employer level application. Usually the employer application will spell what is to be considered a full time eligible employee at 30 hours a week or allow for a company to dictate a guideline up to 40 hours. The point is that the vendor will require that all employees above a certain number of hours (considered full time) to be considered eligible employee and as such be offered coverage. Does that make it federal statute, not yet. At the same time, are you putting your signature to the health insurance application, yes.

The insurance companies know what is coming, that’s why they do it. If a company is doing something they shouldn’t when the enforcement begins, the vendors are going to cover themselves. Indirectly, they are covering their customers by forcing their hands too.

Can a startup offer more to executives in terms of benefit toward health insurance versus hourly (rank and file) employees?

As of the time of this writing, yes, but that will be changing and probably soon. Obamacare dictates that paying more in benefit to an executive class of employee violates the non-discrimination provision of the Affordable Care Act. This is laid out in full in IRS release 2011-1. But, and it’s a big But, these aspects regarding non-discrimination testing (not so dissimilar to what you would see on 401k plans) were put on hold, were held for comment on the laws by the IRS, and subject to further guidance before the components of the laws were to be enforced. Once again, as of this writing, the guidance hasn’t been handed down by the IRS, therefore a company can offer more in terms a contribution or benefit to an executive class of employee versus the rank and file.

Does this make it a good idea? Not my call, that’s yours. Understand that when the other shoe drops….and it will….violating the enforceable statute will be costly. A resource from the Society for Human Resource Management that goes into more detail concerning this are as follows:

Nondiscrimination Rules for Health Plans Loom Ahead

For those that want the quick and dirty, penalties of $100 per day, per employee who gets less favorable treatment up to 500k is the penalty. Not someplace you want your company to be knowing that these rules are going to be enforced at some point down the road.

Needless to say this issue is fraught with potential landmines. My advice, just don’t do it. If you need to make things right with an executive, make it up someplace else besides on healthcare, the downside is just too big given the changing environment.

 

When should a startup consider Directors and Officers liability coverage?

January 1, 2016

Here are a few trigger points where a company will want to get this directors and officers coverage in place.

A prerequisite to a funding round

One point at which it makes sense to insure your directors is if getting a pile of money depends on it. In many cases, VC or private equity firms will make this a contingency to closing a round of funding for a company. The amount of coverage will be set by the entity but more often than not it is a stock 1mm coverage amount. EPLI may also be a component of this prerequisite and would be a seperate line item in a comprehensive management liability policy, just be aware.

You are trying to land a board member and they require it

I’ve had clients out in Silicon Valley try to bring experienced people in to become part of a board of directors. The people that were targets of these companies were experienced old hands in the tech and startup space, so one of the first requirements these folks had was making sure that D&O was in place. If you are trying to put a board in place made up of experienced industry veterans, be prepared to have Directors and Officers coverage become part of the conversation.
A third time frame is a little more of a judgment call on the timing, but if you yourself are an officer and are asking this question, you will want to consider it when you feel it is time to……

CYA-Cover Your Ass

As soon as there are directors and officers acting in a management capacity, there is a need for this type of coverage. Most bootstrapping startups will put it off until there is a trigger and that’s understandable but if the company has some traction and is moving along well enough where the resources are there, get this in place.
Claims made against the directors and officers of a company can put their personal assets at risk. In the event that a director or officer is named in a lawsuit on a claim that stems from the management of a company, there is a high probability that other insurances such as General or Professional Liability will not cover such claims. Directors and Officers coverage deals with precisely these types of issues. With the broad range of issues facing company management, the scope of potential litigants and the rise in claims made against directors and officers, if you aren’t looking into this type of coverage, you probably should be.

For more information you can check the following related posts:

Management Liability policies: Is it just Directors and Officers coverage?

How does Directors and Officers coverage work?

How common is it for a startup to pay health insurance premiums for dependents?

December 24, 2015

Speaking from my experience with clients, it is very common, pretty much expected, that employer contributions for health insurance would extend to dependents. As a caveat to this post, understand that my clientele primarily are in the high-tech startup space and the competition for talent is very high. Maybe this pertains to your business maybe not.

If a company is not contributing to dependents health insurance, consider these rough numbers. Say you want to place a high level group medical program for your company and the monthly cost for an individual participant is $500. Rough numbers would dictate about a 2x multiple on cost for couples or single parents and approximately a 3.5x multiple for a family plan. Those those numbers would be $1k/month and $1,750/month. Now let’s say you wanted to contribute 100% of the cost for an employee, 0% dependent coverage. If you are a single employee with no kids, Huzzah, 100% employer paid health insurance, awesome benefit, can’t do better. But what if you are married? That employer contribution just went down to 50%. Have a family? That contribution is down to about 30%.

I went through something similar with a company that had three single employees (no kids) and a married employee and wanted to only contribute to the employee medical coverage, no dependent contribution. The first thing I asked was do you think you are doing right by everyone? If you are recruiting and you put this package in front of a potential hire that has a family, do you think you will land the hire? Good luck with that. Needless to say we discussed a more equitable strategy that not only did right by the entire employee base but also would not put the company at a disadvantage in recruitment.

There are different ways i’ve seen to mitigate the issue. I’ve seen companies set a contribution for an employee and set a smaller percentage for dependents (100% employee, 50% dependents). I’ve seen companies stagger different contribution amounts based on tiering (100/85/70 contributions on ind/couple/family). What I rarely see, and I mean just once, was $0 contribution to a dependents health insurance coverage.

As mentioned, my take is a little industry specific where that industry has a lot of competition for talent. I get the funding issue, if you are not funded, how do you pay for it? If you are funded though, take the issue of equitable treatment, recruitment and retention into account. If you grow, inevitably people get married and have kids.

What are some typical things that go into a buy-sell agreement?

December 3, 2015

There are several components that will go into a written buy-sell agreement. Part of what goes into the agreement will be dependent on the type of agreement it is. Items such as whether it will be a cross-purchase or an entity agreement, how the company is set up in terms of company structure and tax implications will have an impact as to how the plan is written. Below are some components that will be included in every agreement.

One of the things that go into every buy-sell arrangement is a means of valuation. The valuation method will be what determines the value on which all terms and conditions for a buyout will depend. The valuation model takes care of any disagreements or debate about what one stakeholder or heir of a stakeholder believes the value of one’s stake in a company may be. There will be no debate, the value will be predetermined so that the mechanisms and terms under which the actual buy sell operates will move forward smoothly. Some common valuation models one would find in a buy-sell include an ‘agreed value’ model where the company ownership in conjunction with corporate accountants will come to an agreed upon price. This pricing model would be revisited at times, typically annually, to reset the valuation. An ‘appraisal method’ is a valuation method where an independent valuation specialist would provide a valuation. The written agreement can dictate who would do the work, if there would be more than one person doing the evaluation and set in motion parameters if there were to be disagreements or large discrepancies. Say you had two evaluators pricing the company and each set of numbers were way off from one another. The agreement could stipulate a third valuation be done and an average of the three be the agreed value. A third common model is a ‘formula model’ where the valuation is based on an agreed upon valuation formula such as simple book value or adjusted book value.

Triggers for a buyout are also a standard component that goes into a buy-sell agreement, common triggers include death, disability and retirement. Some secondary triggers that can and should be considered would be an owner quitting the company or a shareholder actually being fired. The triggers set forth will do exactly what it is stated to do, trigger the terms of the buy-sell should any of the stated events in the agreement come to pass.

Obligations on the parties part will be a mandatory component of the agreement. The obligations lay out each parties responsibilities once a trigger is triggered. One such example would be in the case of the death of an owner. Obligations on the part of ownership will typically dictate that a deceased owners share will be purchased back into the company and distributed evenly amongst surviving ownership. Based on valuation models, the value of the deceased owners stake in a company would be paid for and the proceeds distributed to the estate, next of kin, what have you. Circumstances such as disability or retirement would trigger other contractual functions to occur. Such functions would dictate buyout terms for the exiting owner as well as financing triggers such as disability buy-sell insurance policies. These obligations would be laid out in the written agreement and ultimately redistribute the shares to ongoing ownership. If a shareholder quit the company, or worse yet is fired, this is really where the language of the agreement becomes important. If certain parameters are not discussed or alluded to, it can become a messy divorce. It’s one thing if someone is leaving the company to go do something else entirely from what the existing company does, but what if the quitting owner is leaving to start their own company as a competitor or leaving for an existing competitors firm? You’d have some serious conflicting issues there. If there is a need to outright fire someone who is a stakeholder? Those are some real fireworks. Too often this can lead to the downfall of a company if processes are not set in place in order to get ahead of such things. Obligations on the part of existing and outgoing owners in these scenarios need to be agreed to in writing beforehand. No crossing the bridge when you get there, no handshake agreement. Do it in writing, do it early.

A couple of very important aspects that will be part of the agreement or be part and parcel to making the agreement work properly will be the tax implications and financing. The tax issues will revolve around the structure of the company be it sole prop, S or C-Corp, or LLC. Make sure any agreement and financing method is reviewed by qualified tax consultants to see that no landmines go off should an agreement be triggered. The most common method of funding is through insurance. In cases of death and disability, life and disability insurance policies will tend to be the financing method. Such events will trigger the insurance so as to provide funds to the appropriate entities and complete the buy/sell process. In instances such as retirement or buyout of a stakeholder leaving the company where insurance doesn’t apply, terms are financed through other types of financing mechanisms such as bank loans or installment purchase agreements.

So here comes the shameless plug. If your company is in need of such an arrangement feel free to reach out.

Nathan Therrien
Founder
Business Insurance & Benefits Services of MA
978-400-7014
nathan@bibsma.com
http://www.bibsma.com

When should a startup buy life insurance for its founders

September 24, 2015

Life insurance for founders in a startup is going to become an important factor for a company at some point of the lifecycle. If such a company is still considered a bootstrapping startup, it may be a little premature. The question here is when should a startup purchase such things. From a bootstrapping startup perspective, my answer would be ‘when your hand is forced’.

The most common ‘when’ will be when securing a VC round. Quite often there will be a couple of prerequisites to finishing off a deal and getting the cash. Two of these prerequisites often include taking on some form of insurance. One is procuring Directors and Officers coverage, the second is getting key-man coverage on certain people in the company. A VC or private equity entity will want to see that the company they are investing in will be protected if something were to happen to a key person or people. In many cases this will involve the founders. Founders will typically have particular experience or knowledge that makes then invaluable to the future of a company. VC’s will want to mitigate the risk against the death of such a key person with this type of coverage.

From the standpoint of a company that is not a bootstrapping startup, I would suggest the time frame is ‘when you can afford it’. If your hand isn’t being forced, it will still be important to secure your company against losing a key person as explained. You will also want to secure the company against ownership issues that arise from the death of an owner. This is where a funded buy/sell agreement comes into play. Life insurance is the primary funding mechanism toward this end.

Buy/Sell agreements are a key component to protecting the company and its ownership in the event of a death of a founder, allowing for the seamless transition of ownership should such an event occur. That said, if yours is a startup company with little or no dollar value attached, you don’t really doesn’t need to spend the too many resources here immediately. Once a company gets out of bootstrapping mode, gets some traction and revenue and has the resources to pay for the funding that goes along with a buy/sell, go ahead and do it. This also goes for key-man coverage. If you’re not having your hand forced, wait until you’re ready and then implement such coverage when the company has the resources.

Insurance brokers will almost always tell you that both is a must. Frankly the buy/sell is more of a must in my mind but that doesn’t mean the key-man isn’t important. Just be sure the timing is on your side if you can control such aspects.

Networking events: Some pointers to help navigate and maximize your time and effort

January 1, 2015

Do your homework.

In Boston, there are so many networking events out there it can become a blur. If you wanted to you could literally go to a professional networking event, mixer, forum, fireside chat or any number of events every day of the week. You’ll never get to all of them, and you shouldn’t try. If networking is going to be a part of your marketing plan, then you need a roadmap. Are you looking to cast as large a net as possible or trying to focus in on a certain industry or segment? Does a large room full to the rafters make for a good environment for you or something a little more low key and intimate?

This speaks to two questions you need to answer, who are you trying to meet and what kind of environment is you best suited to?

For my purposes, I steer toward startup related tech events and I like a big room full of people. This speaks to the audience I want to meet and what makes me comfortable. I deal primarily with technology startups in my business. Over the course of time, I’ve been able to find the nicheier (I might have just made up a word there) events in town. It didn’t start that way. First it started with more generic chamber of commerce events, wide net stuff with a little bit of everything. Over time I was able to break down and target my audience and then find those events. If you can do the same thing quickly you can save yourself a lot of time.

The second question of environment plays a big role as well. I like a bigger room because it allows me to blend in a little more, especially if I don’t know anyone and I just hang back a bit. It’s easier to do that in a room with 150 people than in a room of 15, that’s just me. Some people may be intimidated by a big crowd full of strangers, especially a big crowd where a lot of folks already seem to know each other. In this case you may want to find smaller events with more structure than just an open networking session. The structure can keep the ‘it’s a zoo in here’ mentality at bay and simply be a less intimidating event environment.

Have a goal.

When you go into a networking event, don’t go in without having a goal in mind. If you go into an event with the goal of ‘I’m going to meet everyone there’, you can go that route. It better be a smaller event and it better be geared toward your favored audience.

A better way to go would be along the lines of ‘I want to meet 3 new people tonight’ or ‘I want to meet at least one person who would make a good strategic relationship’. The best events I see are those that  have a registration list. This is a huge tool and a leg up if you take the time to use it. Such a list will allow you to narrow down your focus more. Instead of ‘I want to meet 3 new people’ you can put together a list of 3 specific individuals.

Point being, have a game plan going into an event, have an idea as to what you want to accomplish and go execute.

Introduce yourself, then make an introduction.

Some people I know that are fantastic networkers do this. If they meet someone at an event, especially if it is someone that they have never met before, they will have a conversation. During that conversation these really good networkers will pull someone else into their conversation and introduce that new person.

It does a few things. It establishes credibility that you are not just there for yourself but are there to help other people. This extends not only to a person you have just met but also to the 3rd person who just got introduced to someone new. I know this works because I’ve been the guy having a conversation with such a networker and that someone introduces me to a 3rd person brought into the conversation. I’ve also been the 3rd person. There have been multiple instances in both situations where I have been able to establish worthwhile business relationships.

Take it upon yourself to introduce yourself and introduce others.

What can you do for others?  

A big mistake people make is to go into a networking event only looking for what they can get out of it for themselves. It’s the old ‘givers gain’ approach, and it works a whole lot better than most approaches. When you see posts similar to this giving advice on how to approach a networking event, one item that you will see again and again is don’t sell. Don’t go into an event looking to pitch everyone you see and try to sell them. If you are going to network, the likelihood is that most of the people you will meet will be people you have never met before. I don’t know anyone who likes to be sold, even less so by a stranger.

Networking is about establishing relationships, that means building some trust and that means not pitching every person you come across. The hopeless approach, and I’ve seen this, is to go in with your polished pitch, try to sell everyone in the joint, get nowhere, say it was a waste of time, stop networking entirely. Awful, just awful.

One of the better networkers I know says two things when he meets someone new at an event. After introducing himself he says ‘what can I do for you/how can I be of help to you’ and ‘who can I help you meet’? I run an event myself, and if you’ve been, you may know who I’m talking about (looking at you Stevie Z). It’s a great approach, it’s not salesie, it’s helpful. It’s an honest attempt at trying to help someone out that you haven’t met before. People remember that. It builds trust more quickly and effectively than another stale sales pitch.

I have been steered toward quite a few valuable resources by this gentleman because he doesn’t just do it once, he says the same thing to me every time I see him. And you know what? I leverage the heck out of him because his contacts are fantastic. Think I won’t try to help him out the next time I get an opportunity?

This last point is probably the best piece of advice I’d have for someone navigating networking events. See how you can help out others, and then go out of your way to do it. You’re chance to pitch will come. You won’t even have to because others will be looking out for you so long as they know what you bring to the table. Let people know what you do and what your capabilities are, but leave the sales pitch at the door.

Avoid the horror show, get a buy-sell arrangement done (part two)

December 21, 2014

In part one of this two part post, I wrote about buy-sell arrangements and how that will protect business partners against the unexpected death of one of their own. Circumstances that come with the death of a partner can vary, but in the end, surviving owners need to be concerned with people and entities that will have competing interests if such folks wind up with the the decedents ownership stake in the company.

In this part of the blog we will tackle what happens if a partner in a company becomes disabled. In an instance such as this, the dynamics change. In the event of a partners passing, co-owners would need to deal with outside parties. In the event of a disability, you’re not dealing with outside parties, you’re dealing with your cofounder or partner. This is going to change the way things are treated.

A disability to a co-owner can create some uncomfortable problems if the event is severe enough. What if such an event is bad enough that a co-owner can no longer work at all? Maybe worse than that, what if you have to break the news that while a partner may feel he or she is good to go, they just can pull the weight anymore?

To start, we will discuss the worst case scenario, a permanent disability that simply will not allow one to work in the business anymore. Over the course of one’s working career, the chances of suffering a disability versus the chances of dying are about 3.5 to 1. In your younger days, that ratio is higher and as you age that ratio decreases. Given the chances of such an occurrence, the need for disability as part of a buy/sell arrangement becomes pretty clear.

So what happens? In the event of total disability, the disability buy/sell arrangement will dictate a process, a valuation model and if done properly, a funding method using disability insurance to fund the buyout. Within a complete corporate buy/sell arrangement, there will be a component in the event that a disability that will not allow for a partner to continue in such a capacity. Should this occur, it would trigger the terms of a buyout per the terms of the arrangement. For funding purposes, disability buy/sell insurance coverage should be put in place in order to finance the arrangement. Without the insurance proceeds, one partner would have to either have cash on hand, or raise the funds independently to finance the buyout.

Short of that, what you have is one partner running a business with a second partner simply along for the ride. Not the scenario the partner running the show at that point would feel to be fair to him or her.

What if there is no total disability? What if it isn’t permanent and all parties feel that the owner will fully recover and be able to return to work? This is where Disability Key-Man coverage comes into play. This becomes the middle ground that will cover a company for the expenses incurred while a key person is out on disability. It should be tailored to sufficiently stabilize the company while determinations can be made regarding an employee return or ultimately replacing said key person. This issue is more complex than the brief description given here and will be explored more completely in a different blog post.

The disability recovery scenario is why most buyout triggers of a buy/sell agreement dictate that a partner be deemed totally disabled and that a long probationary, typically 12 months, be subject to the triggering of a buyout. A business owner will not be too quick to hand over a stake in a business if he or she were to believe that they will be able to recover from an incident. Quite frankly, a business owner may plain and simple never give up the stake regardless…unless there is a preset arrangement with parameters in place.

As a disabled owner, without a formal agreement there is nothing forcing the issue to trigger a buyout. A disabled owner could set their own price that a co-owner doesn’t agree with or is simply an unfair valuation. A disabled owner could go out in the open market and find another buyer to take over their stake if he were to find someone other than a co-owner to meet his price. Where does that leave the healthy partner? Without the arrangement set in stone, one could be looking at running the company essentially by himself, a new business partner, and if things come to a head, the disillusion of the company entirely.

It doesn’t need to happen and both parties owe it to themselves to get ahead of such things. When an instance such as a disability occurs and the potential impact of business becomes an issue, egos and feelings get involved, that helps no one. Take it out of the equation now.

For more information on the topic or guidance, use the form below or reach out directly to Nathan Therrien at 978-400-7014 or at nathan@bibsma.com

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4 types of insurance your startup is going to need.

December 18, 2014

Workers Compensation Insurance. Ok, this one is easy. The state pretty much mandates that you have this type of insurance coverage in place once you hire your first employee. It is going to be fairly inexpensive if you consider that you would only be paying for coverage on one employee or perhaps the owners of a company based on how the company is set up to start with.

General Liability. Most people will think of this as the ‘slip and fall’ insurance. It’s true, it is slip and fall insurance, but there is quite a bit more in there which is why general liability would be better described as your ’bread and butter’ insurance. This kind of coverage represents the foundation of protection for your company.

Aspects of this type of coverage include advertising and personal injury. This will cover you if you screw up some of your advertising at someone’s expense. You may slander someone or violate intellectual property such as trademarks or copyrights. Products and Completed Operations coverage is also part of General Liability. If you sell an actual product, this is where your coverage lies if that product were to fail, or if it injured someone. There is of course the ‘slip and fall’ scenario where someone walks in your office and takes a spill because someone dropped a coffee on the floor.

Most of the time, the trigger for this type of coverage for a startup will be a move into a commercial space or the need to settle up with a vendor contract.

Professional Liability. This is where you get a little more specialized. If you work in some kind of services arena or in a technical space, you will likely need this. Professional Liability coverage covers a firm if there was any sort of claim that stemmed from the normal operations of one’s business. Pretty much this is the coverage that would protect your company from damages that stem from a mistake made by you for work done for another party. If an insurance brokers screws up someone’s insurance, that is a mistake that stems from the normal day to day operation of the broker. The act was done within the confines of his or her profession.

This type of coverage extends to all aspects of services, doctors, lawyers, on and on. Technology has its own subset called Tech E&O which specializes coverage around that industry and its specific needs such a cyber and breach protections.

General Liability goes hand in hand with professional. If you only have one, you may have a big gap in your exposure.

Directors and Officers. This is a bit next level, but in this day and age it is becoming more and more of a requirement rather than an ancillary coverage. Directors and Officers coverage covers officers of a firm for damages that stem from actions taken as a matter of management of that firm. A good example is stakeholders of a company taking issue with a strategic direction. If the CEO does X instead of Y and a stakeholder is caused damage, that stakeholder can sue the company officer. Not the company mind you, the officer. That can leave a big personal exposure of you are not protected.

An important component that goes hand in hand with D&O coverage is EPLI (Employment Practices Liability Insurance). It’s become more and more common that lawsuits against company officers don’t come from the outside, they come internally from employees, or more to the point, former employees. Claims such as harassment, discrimination and retaliation are common causes of employment claims where an employee will file suit naming not only a company but also officers.

D&O coverage has become more and more necessary to insulate yourself as an officer of a company. Some feel they don’t need it or it will never happen to them or just don’t see the risk….they would be wrong. It’s a litigious word we live in. Don’t get hung out to dry.

If your a company that has reached any of these points and can use some guidance, feel free to reach out to us, we’re here to help. You can use the form below or contact Nathan Therrien directly at 978-400-7014 or by e-mail at nathan@bibsma.com

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Avoid the horror show, get a buy-sell arrangement done (part one)

December 2, 2014

Small business owners have enough on their mind, but some things just need to get taken care of. If you are an owner of a company with at least one partner, a buy-sell arrangement is one of those things. Buy-sell arrangements are the legally binding framework and roadmap to the divesting on an owners stake in a business depending on a variety of factors. For the purposes of this blog post we will be focusing primarily on the death of an owner.

One of the most important reasons to get a buy-sell arrangement done is to protect owners against a worst case scenario, the untimely death of a partner. It’s a tragic consequence when this occurs, and something that becomes a life altering event when it happens on a lot of levels. When it includes an ownership stake in a company with other partners, that consequence involves that many more people. It is unfortunate that such an event can trigger the dissolution of a company unless steps and a process are in place.

When such an occurrence takes place there is going to be an issue with the estate and heirs of the deceased owner. What comes next without a plan in place can be ugly, especially if the company does not have a set valuation process and means to fund a buyout. Without an arrangement, the owner’s stake is going to pass to the owners heirs or estate. Without an arrangement in place, surviving owners have a couple of options, neither good nor practical.

On one hand, the surviving owners can establish their own means of funding in order to buyout the deceased owner’s heirs. There are two problems here, first is whether the surviving owners can line up that kind of financing. Surviving owners will likely need to approach a bank in order to set up the kind of financing needed to accomplish such a buyout, this may not be easy in and of itself, but what if the owners have a certain value in mind and a deceased owners heirs disagree. Maybe the heirs think the company is worth more than surviving owner say, maybe the heirs think they are being taken for a ride. It’ll be an emotional time and no place to start throwing large numbers around.

Which brings us to the second impractical option, say hello to your new partners. Now maybe the heirs of an owner are knowledgeable, reasonable people who simply want to keep the stake intact and retain ownership passed onto them as a silent partner, best of a bad situation. Worse than that is a new owner who wants to come in a turn things upside down. The husband or wife who wants to start making all the decisions or the idiot know-it-all son or daughter. This is where things go from bad to worse and makes for an untenable situation.

Either one can lead to a forced liquidation of the company in time.

Avoid it…. avoid it all. A simple buy/sell arrangement can set in stone a means to value the company, and the means to finance it. Find a good attorney with experience in drafting such a document to see to it that all the issues are covered and that any unique circumstances related to your company will be attended to. From there, purchase life insurance policies to finance a buyout in the case the death of an owner. Such an occurrence will trigger the buyout based on an agreed upon valuation in the arrangement and insurance proceeds will be used to pay for a surviving heirs company stake. The share of the deceased owner will come back into the company and distributed amongst the surviving owner per the agreement.

It doesn’t cost much to get things done and it beats having to deal with the alternative. It becomes more important the more stakeholders there are because face it… things happen, the unexpected occurs and companies need to be prepared.

For more information on the topic or guidance, use the form below or reach out directly to Nathan Therrien at 978-400-7014 or at nathan@bibsma.com

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Common question: How do deductibles, co-insurance and out-of-pocket maximums work on my insurance plan?

October 26, 2014

These are three common items associated with most company insurance health plans. They are very important because these are the primary aspects that will determine the bulk of the cost employees and their families will incur when they go to their doctors and hospitals. Let’s take them one at a time.

Medical Deductible: This is the amount that a medical plan enrollee will have to pay for certain services first before the insurance begins to kick in. Usually a medical deductible will be a set amount between $500 and $2,000 per policy year for an individual. For families, the deductible will typically double. If a deductible is $500 for an individual, it will be $1,000 for a family and so on as deductibles increase. One thing companies ought to be wary of is what the deductible applies too. Some services will be subject to the medical deductible, others may not. Most often, medical deductibles will be associated with hospitalizations and surgeries. In some plans, the deductible may be extended to emergency room visits and doctors appointments.

Co-insurance: This is the thing that I always advise companies and individuals to look out for. This is the aspect of enrollee cost that can really ramp up those costs quickly. Co-insurance is a cost that will come into play after the medical deductible is satisfied. It is a percentage split that an enrollee will be responsible for after the medical deductible. Common co-insurance amounts on a plan will run at 10 or 20 percent, in some cases higher. In a nutshell, if a company has a $500 medical deductible and a 10% co-insurance model, the enrollee would first satisfy the medical deductible. From there, whatever is left on a medical bill after the first $500, the enrollee will be responsible for 10% of that number up to an out-of-pocket maximum.

Out Of Pocket Maximum: This will represent the most an enrollee will pay for any given policy year. As with the medical deductible, the out of pocket maximum will have one number for an individual out of pocket maximum and will typically double for a family. For example, a plan with a $2,000 out of pocket maximum for an individual will have a $4,000 out of pocket maximum for a family. Co-insurance features are the things that can bring the out-of-pocket maximums into play, when you have a percentage on a large medical bill, these limits have a habit of being reached.

My experience has taught me to advise avoiding plans with co-insurance when possible. With that said, different vendors in different states will have different plans. Sometimes cost simply won’t allow for a plan that doesn’t have it.

Make sure as both employers and employees, that everyone is aware of these three factors. These will determine the true costs of your plans in terms of monthly premiums and usage costs. The one thing no one likes is a surprise that hits them in the wallet.

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