Disability Insurance for Passive Income.

[John C.]

Hello,

I am a buy and hold investor.  I have private lender who has given me mortgages on about half of my properties.  $410,000 over 8 years, payment is around 6K monthly.  I have life insurance with him as the beneficiary to cover the balance in the event of my death.  His concern is that although my income is reported as passive income on my tax returns, it is 63 low income doors, and managing it is anything but passive. He has asked me to get some sort of key man policy that would cover the balance of the loan in the event of my disability. That would be preferable.  He would instead tolerate some sort of disability policy that would make monthly payments of $6,000.  It is acceptable for the disability payment to be paid to me or directly to him.

His LTV his about 50%. I understand that some would say this really isn't necessary because he could just foreclose on the properties... but he who has the money makes the rules, and he is insistent. I am counting on him for future mortgages.

The challenge I'm running into is two fold.  1. After depreciation I'm not making that much passive income.  On my 2017 tax returns I made about 40K.  I have not filed 2018's yet, those MIGHT be closer to 100K.    2. It seems disability companies do not want to accept passive income.

As I mentioned this investor has a mortgage and note, I do not want to consider making him a partner on the LLC at this time. Some have suggested some type of bond... not sure how this works. At this point my credit score is not the best, not sure if that makes a difference.
Suggestions?