Disability Income Insurance Series – Part 2

Which Disability Insurance Product is Best for You?

What are the different types of disability insurance that somebody can purchase? A lot of times people just think it is individual income replacement in the event that someone becomes too sick or hurt to work. However there are a variety of different types of disability insurances that a person can choose to purchase if they qualify, and each of these disability policies solves a different need.

Retirement Guard/Retirement Protection Plus

One thing unique to the disability market is a product called Retire Guard or Retirement Protection Plus, depending on the carrier. When people who are working for an employer become too sick or hurt to work, their 401(k) contributions stop as does their employer match. We have the ability to help insure and protect those retirement contributions through our Retire Guard Disability Policy. With Retire Guard, we can cover contributions that were made to:

• A 401(k)
• The employer match to the 401(k)
• An individual IRA
• A 403(b)
• An SEP
• A SIMPLE
• Profit Sharing Plans

We can insure those contributions that the client was making for their retirement. This way we can help preserve their retirement for the time that they need it, when they turn 65 versus them tapping everything they have in their retirement account now, because they are too sick or hurt to work.

Small Business Owners

A lot of time business owners have Business Interruption Insurance, something that covers them in the event of a storm, a hurricane Sandy or any other act-of-God-type situation – fire, a car drives through the front of the building and the building can no longer operate. However, the one thing Business Interruption Insurance does not protect is the owner him/herself, if they become too sick or hurt to work.

Business Overhead Insurance Disability is something that will help pay the expenses of a business owner, if they were to become too sick or hurt to work. The goal is to keep the business operating, keep paying your employees, keep paying the rent, the utilities, keep the lights on, keep the doors open, keep employees coming into work, continue to pay their benefits even though the main business owner is unable to work and generate revenue for that firm.

Business Overhead Insurance is an attractive product because it is entirely tax deductible to the entity. From a business owner standpoint, especially in a smaller business, your employees are key people to you. You are going to have two or three people that can continue to run the shop if you are not able to work, and you want to make sure that you don’t have to worry about paying them. You are going to have their paychecks to them on a bi-weekly or monthly basis. You are going to be able to pay their benefits on a weekly or monthly basis. You don’t have to worry about accounts receivable coming in and you ensure that the business can continue to operate.

I should note that any individual disability insurance is completely independent from any business overhead insurance a person might have. The two operate independently. So you can have the maximum amount of Business Overhead Insurance that you qualify for and the maximum amount of Individual Disability Insurance that you qualify for.

The next step up from Business Overhead Expense is a Disability Buy Sell Policy. Like most business owners, you are going to have a buy/sell agreement in place. A Buy/Sell Agreement is the legal document that dictates what happens in the event of death of one of the business owners, retirement of one of the business owners, or disability of one of the business owners. Fortunately, most business owners don’t know that within that Buy/Sell Agreement is that clause regarding disability. Most people haven’t looked at it or thought of it.

We have the ability to help protect those business owners and to help them create the funds necessary to buy out the other owner, if one of the business owners was to become too sick or hurt to work. The nice advantage to the Disability Buy/Sell is that it is going to create instant cash for the insured once it’s satisfied the waiting period, which is typically twelve months. This way the business owners don’t have to rely on the business being continually funded, if they came to some sort of agreement that partner A was going to pay partner B out of company profits. That could lead to some issues between the partners and potential lawsuits. This Disability Buy/Sell Policy is going to create that cash that they can use to pay that business owner, and they can continue to run the business, don’t have to worry about a drain on profits, liens, or any other type of restriction.

Finally, for our high income earners making over $800,000, there is a product called Executive Select Coverage. This type of coverage is a traditional disability insurance, above and beyond normal company issue participation limits. It allows our higher income earners to replace a greater percentage of their income. At most a traditional carrier will issue $20,000 a month of coverage on their own paper. With Executive Select, Mass Mutual can issue up to $35,000 of monthly disability coverage on their own paper. All with contracts with locked in rates. Rates that will be guaranteed not to increase.

Do you need to review your disability insurance picture? Please give us a call so we can discuss the most appropriate plan for you, your employees, and your business.