Long-Term Disability Insurance

Question: If you were unable to work for an extended period of time and be unable to generate income, would this create a problem for your family?

For most individuals, the answer is a resounding yes.

Problem: Loss of family income affecting lifestyle, goals, and objectives.

Solution: Long-term disability (LTD) insurance. If your family owned a machine in the basement of your house that pumped out $150,000 per year, wouldn't you insure it? Chances are, you would. In reality, YOU are that machine!

LTD insurance planning has long been one of the most overlooked areas in financial planning. Some individuals are fortunate enough to be covered by their employer's group plan; however, nationally, they are in the minority. In many cases, group LTD insurance is subject to income taxation, therefore, further eroding the family's income stream. If your employer offers group LTD insurance, then it is extremely important that you review this coverage, often, in order to ensure that it adequately meets the demands of your family's income needs.

For business owners, LTD can have a greater impact on a business owner's and, more important, his or her family's livelihood. Fortunately, solutions exist to remedy the additional problems faced by business owners.

For a business owner, individual LTD insurance is an available planning option, but what becomes of your business if you are not able to be physically present and actively involved on a daily basis? Would the business remain healthy enough to provide your family with an adequate income? Would your business be able to retain its value? Would your business remain open? Would your business be marketable? If yes, then would your family receive its fair market value? These questions are at the heart of business continuation and succession planning. They also address the part of your overall planning equation that asks this question: "What happens to my family's income if I live, die, or become disabled?"

In brief, business owners have access to two additional types of LTD insurance: business overhead expense (BOE) coverage and disability buyout (DBO) coverage.

Quite simply, if a business owner becomes disabled (as outlined in the specific LTD policy), then his or her BOE insurance pays the business's qualified monthly expenses. Qualified expenses may vary somewhat between insurance carriers and within various industries. It may even cover the cost of hiring a replacement for the business owner. One additional benefit, the premium for a BOE policy, is fully tax-deductible to the business.

The BOE policy is designed as a short-term stopgap solution. The benefit period (payout period) typically does not exceed 24 months.

DBO coverage is designed to address business continuation planning and to ensure that the business owner secures a predetermined market, and price, for his or her ownership share in a business. Two or more business owners are needed for this type of planning. Here's how it works:

If a business owner becomes disabled (again, as defined by the policy), then the DBO policy pays the disabled owner a predetermined amount in exchange for his or her share of the business. Payments may be received as monthly benefits, a lump sum amount, or a combination of the two. Typically, the maximum benefit period is five years. One important note, since a chance of recovery always exists, and an owner would not want to sell his or her share of the business prematurely, the elimination period (when benefits begin) on a DBO policy is atypically long for LTD insurance policies (one to two years).

One caveat: For either type of business insurance planning, DOE or DBO, it is imperative that you enlist the services of a qualified attorney and, in most cases, a qualified accountant to work in tandem with your insurance professional.

For more information on long-term disability business insurance planning, please contact us with your specific request.

Fixed insurance products and services offered through CES Insurance Agency.