Being kept from your business by a disability or illness isn’t something owners like to think about. Who would? But it’s important to be aware of the coverages available to manage potential risks, and whether they are required in your situation.
For the plans below, evidence of good health is required in order to qualify. Pricing is based on the age, gender, occupation and smoking status of the applicant, and also the structure and total amount of insurance applied for.
Long Term Disability (LTD) Insurance
LTD insurance protects a business owner’s income in the case that a disability or illness or accident prevents them from working. The coverage amount is based on a percentage of their income, and the benefit can be structured to pay out after a 30 to 180 day waiting period. The coverage can be set up to pay disability benefit for a five year period or to age 65. If premiums are paid personally, any disability benefits received are non-taxable.
If there are at least two owners or employees to insure, an Income Loss Replacement Plan can be arranged, which means that the premiums are a tax deduction for the business.
There are a variety of coverage riders are available; the most important of which are:
o Partial Disability coverage, which allows a proportionate disability payment in the event the insured is able to work but in a reduced capacity.
o Cost of Living Adjustment (COLA), which indexes disability payments for cost of living increases each year. This option is especially important for younger business owners.
o Future Earnings Protection Option (FEPO), which allows the insured to add increasing coverage as earnings increase, without having to provide evidence of good health. This is a good benefit to select when income will be rising in the near future.
Business Overhead Expense (BOE) Insurance
BOE insurance pays ongoing business expenses in the event a business owner becomes disabled. This plan can be structured on a reimbursement basis, although a lump sum monthly benefit is preferable. The BOE benefit can help to keep a business running while an owner recuperates. Items such as equipment, building or vehicle leases, and staff wages can be covered. The premiums are tax-deductible for the business. Benefits are taxable if received; however tax deductions for the overhead expenses being paid by the business offsets this.
Critical Illness (CI) Insurance
CI insurance provides a tax-free lump sum in the event of serious illness, such as cancer, heart attack or stroke. Most insurers offer plans that cover at least 22 illnesses. The benefit payable can be used to seek private medical treatment or care, pay personal expenses such as a mortgage, or for business purposes, such as hiring an interim manager. The plan can be structured to provide a return of premiums if no claims are made. Critical Illness coverage is available in amounts ranging upwards from $25,000 to several million dollars. For situations where disability insurance is not available, or is too expensive, clients may consider purchasing CI insurance.
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