Kim Ketchum
Unique Options to Avoid the Consequences
of a Disabling Accident or Illness
Business
Overhead Disability:
A serious problem occurs when a business owner or an employee that is responsible for certain overhead costs becomes disabled. There are two budgets, yet only one income. The family budget is of course addressed with personal disability insurance, but the business budget often times goes unattended. Business Insurance known as Business Overhead Expense is the solution to this additional budget problem. Maintaining a cash flow to allow a firm to stay financially afloat while the business owner recovers from a disability is the basis of this type of insurance. Premiums for Business Overhead Expense insurance are tax deductible and benefits come to the firm on a reimbursement of deductible expenses, thus they remain tax free.
Most are familiar with Buy/Sell life and disability plans. But what is “Buy-In” disability insurance and what makes it different from Buy/Sell? A very classic example of a Buy-In would be the dental practice who has hired a young dentist and is giving him or her the opportunity to become a partner. A typical approach would be to have the new professional buy into the firm or practice using the cash flow of his or her production to do so. Often times, this is accomplished by a reduced income for the new partner during this “Buy-In” period.
So the young dentist in this example might be agreeable to accept 20% less income in exchange for becoming a full partner in 5 years. You might refer to this as an “earn in” period. During the next 5 years, the young professional is faced with the following dilemma: “If I were to become disabled during the next 5 years, I may risk any equity that I have been paying for by way of my salary reduction.” This equity can be insured with a Buy-In Disability plan.
Buy-In Disability:
For a company, the sudden disability of a partner can be more detrimental than his or her death. The healthy partner now is burdened by the disabled partner. The disabled partner, not able to productively contribute now sits on the sidelines with lots of time on his or her hands, constantly raising concerns about how the company is being managed. In this case, the disabled partner is still earning a salary but not contributing positively to the company, and it would be in the company’s best interest for the healthy partner or partners to buy out their disabled partner.
Prescribing adequate amounts of Disability Buy-Sell Insurance is a perfect solution to this problem, and an effective way to save the company from financial distress.
Buy-Sell Disability:
In the months that precede a disability buy-sell trigger, a financial drain can occur on an organization while the disabled principal is unable to work. Given that most disability buy-sell funding plans have a 12 month or longer elimination period, the question for the firm often becomes, “What can be done to assist financially, while we await the inevitable buy out?”
The Disability Buy-Sell PLUS plan provides security with a monthly cash flow delivered to the firm in meaningful amounts. These disability insurance funds can be used at the discretion of the firm to assist with their cash flow, which would most likely be feeling the pinch from one of their principals being disabled.
Disability
Buy-Sell Plus:
Signing a contract obligates both parties to stand by their initial agreement. Unfortunately, unforeseen circumstances can inhibit people and companies from carrying out the terms of the contract. One party’s inability to fulfill the terms of the contract could mean the other party takes a huge financial loss.
Traditional Contract Guarantee plans may not have high enough limits to fulfill your clients’ needs; Ketchum Company’s Contract Guarantee Disability Insurance will cover your clients when other disability insurance agreements fall short. Whether this contract is between a company and employee, business partners, or divorced couples, almost all contractual relationships can be considered under this disability program.
Contract
Guarantee Disability:
Most companies have key employees to which the success and profitability of the firm are directly related. The business would not be what it is without the knowledge, experience and skill of such Key Persons.
While it is routine for companies to insure their physical assets such as their office equipment and buildings, most overlook the obvious need for protecting against the loss of a Key Person as a result of a disability. Yet statistically the chances of a Key Person suffering a disability far exceed the threat of loss on the property of the firm.
The loss of a Key Person can be devastating, not only affecting the profitability of the firm but also productivity, customer relations, employee morale and in general the overall effectiveness of the firm. Protection against the loss of cash flow and the usual increase in costs when a key employee becomes disabled can be obtained with Key Person Disability Insurance.
Key Person Disability:
Often times, when a bank lends money to a business, a lender will require the borrower to provide disability insurance covering the payments. This insures the lender that should the borrower become sick or hurt the payments will still be made. The preferred solution for this type of requirement would be to prescribe disability insurance that would pay the monthly loan payments and/or pay off the remainder of the loan balance, while not interfering with the borrower’s personal disability insurance.
Most often, a traditional Business Overhead Expense insurance plan benefit periods are too short to satisfy the loan. Additionally, while it may be advantageous for the bank, asking an individual to assign his or her personal disability benefits to the bank would leave the insured’s family seriously vulnerable financially.
Loan Indemnification Disability Insurance Plan will satisfy the lender’s requirements. Monthly benefit periods from 1 year to 10 years are available and there are also lump sum benefit options. The plan would be set up to mirror the loan terms with a declining benefit; this type of set up will save your clients in premium costs.
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Loan Indemnification
Disability:
Whether it is a 401K, Profit-Sharing, SEP-IRA or Keogh plan, any defined contribution retirement plan can be guaranteed to complete itself in the event the participant becomes disabled. People who participate in retirement plans often times do not think about the fact that personal disability insurance in of itself will most likely not provide a sufficient benefit to maintain a family’s lifestyle and provide for the continued deposits into their retirement plans. What will happen when the personal disability insurance benefits cease at age 65? Will there be a fully funded retirement plan waiting? Interruptions to the contribution of a retirement plan would seriously impact the amount of money available at retirement. Why take the chance of letting a disability cause such anxiety when the planned contributions can be insured?
Pension
Completion Disability:
A formal salary continuation plan states that in the event an employee becomes disabled and can no longer work, the company will continue paying his or her salary for a specific period of time. A salary continuation plan makes a great deal of sense because without one in place any payments made to a disabled employee may be deemed a dividend from the company, creating a significant tax consequence.
Helping the disabled employee provide for his or her family is a nice gesture on the part of an employer, however, for the company it can be financially tough since they are paying an employee who is no longer contributing to the success of the fi rm. Removing this financial burden can be done by purchasing disability insurance. However, if an employee’s income exceeds the income replacement limits of the traditional disability insurers, this will place an unrealized liability on the books of the company. Ketchum Company’s Salary Continuation High Limit Disability Insurance Plan is designed to solve this problem. This insurance protects the disabled employee by insuring he or she will receive their promised income in addition to protecting the company from taking a significant financial loss.
Salary
Continuation Disability:
An interesting problem develops when the termination of an employee involves a severance package and part of that package is the requirement to continue certain benefits for a set period of time. The toughest of these promises is the replacement of the Group Long Term Disability plan. Many LTD plans do not have a portability provision and those that do are usually limited to very modest amounts of benefits, less than what is called for in the severance agreement. Once the severed employee comes off the payroll, he or she is no longer covered under a LTD plan.
HR Departments panic when they realize they can no longer keep the terminated employee on the group LTD plan and unfortunately, securing an individual plan is not usually an available option since the person is now currently unemployed.
Severance
Agreement Disability:
The following are representations of the benefits and policy features of one or more of the carriers we represent. Their availability is subject to the applicant satisfying underwriting criteria which may vary between companies.
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