One of the most valuable assets of any business is often the owner, yet it is often the least insured asset on the books.
Perhaps you have a group disability plan for all employees, owner included. But is that really enough? Most group plans have benefit limits that often severely under insure the higher wage earners. Perhaps a benefit clerk takes care of these issues. For example a group policy may pay benefits of 60% of gross base wages. Sounds good so far, however read the rest of the policy. There is also a $600 a week maximum benefit. So an employee earning $1,000 a week will have the same benefit as an owner earning $2,000 a week or more, only $600 a week. Often benefits stop at 26 weeks.
Another potential income reduction lies in who is paying the coverage premiums? If the employer is paying the premiums for the coverage as a deductible business expense, then all proceeds will be taxable income to the recipient. This can amount to another 10%-25% income cut on benefits received.
An alternative is to secure private disability coverage that can pay benefits from one year to age 65 if needed. This can be coordinated with any existing group plan in place to keep premiums affordable. Most insurers will not insure an income above $10,000 a month on any person. If your income is higher than $16,000 a month, you may need to secure policies from more than one company.
Disability policies have benefits that can include return of premium riders, catastrophic illness riders to pay special benefits for a heart attack for example, own occupation riders, etc. Disability coverage can be custom made to suit your unique situation.
Another often overlooked option for disability is to use some of the new Long Term Care policies that do not require long term care to trigger benefits. Most LTC policies pay on a reimbursement basis, similar to your health insurance. Until the services are provided, billed, and submitted to the insurance company for payment, no benefits will be forthcoming.
This repetitious cycle of services, submission, and reimbursement can be daunting for family members and severely hurt cash flow. New generations of LTC policies available are much simpler to administer. You need to be unable to perform at least two adult daily activities to allow benefits to be paid, certified by your physician. You spend the benefits as you see fit and do not have to provide all that supporting expense documentation.
Business overhead coverage is another area that should be examined with a good casualty agent in conjunction with your existing business policies. With the owner out of the picture, where will the funds come from to pay for a replacement until the owner returns?
There are rare situations where an owner is uninsurable, or the income is extremely high such as a surgeon. In that case, you may need to be more creative in working with an experienced Financial Advisers to find alternatives that would work that may include working with the famous Lloyd's of London.
Amy Rose Herrick, ChFC, IAR is a Registered Representative of and offers securities and investment advisory services through, Woodbury Financial Services Inc. Member NASD, SIPC and a Registered Investment Adviser
