May is Disability Insurance Awareness Month (DIAM) – Take A Realistic Look At Your Business Risks And Needs

Submitted by Creative Financial Group (CFG)

What would happen if suddenly, due to an illness or injury, you or a business partner were unable to work or run your business? When life changes radically due to disability, three things remain unchanged: your regular living expenses; your business expenses, and the operational costs to run your business.

If you or a partner becomes permanently disabled, how long could the business realistically cover payroll expenses for the disabled partner? Could you afford to buy out a disabled partner? Could the business run smoothly without you or a disabled partner? If you become disabled, could you continue to provide for yourself and your family as well as contribute to a retirement fund?

Too many business owners underestimate their risk of suffering a disability and overestimate the resources they have available in such an eventuality. If you are a business owner, a disability can mean financial catastrophe not just for you and your family, but also for your partner(s) and employees.

May Is Disability Insurance Awareness Month

That’s where disability income insurance for small businesses comes in. May is Disability Insurance Awareness Month (DIAM), a good time to take a realistic look at your need for business disability insurance. “Disability income insurance allows you to maintain financial security for you and your family and also safeguard your company and the livelihood of your employees and/or business partners,” says Rich Laver, Director of Disability Income Sales at Creative Financial Group, Newtown Square, Pa.

Disability income insurance protects you and your small business in several important ways. It provides replacement income in the event that you can’t work due to a disabling illness or injury. It will continue to pay not only your mortgage and other living expenses, but also your employees’ salaries, allowing you to preserve your assets and savings while retaining the value of your business.

Why, then, do so many small business owners lack this basic protection? Common misconceptions are largely to blame. You may think you can rely on your savings until you can get back to work, however disabling illnesses or injuries often last for months or even years, quickly depleting your nest egg. Moreover, the odds of suffering a long-term disability are high for everyone, not just people in risk-prone professions because illness, not accidents, account for 90 percent of disabilities that keep people out of work. Nor should you count on government assistance. According to the National Safety Council, 73 percent of long-term disabilities are a result of a non-work-related injury or illness that won’t qualify for state-based workers’ compensation. If you were hoping for Social Security disability benefits, know that about 45 percent of applicants are initially denied and those who are approved receive an average monthly benefit of just $1,111, barely above the poverty line!

Three Types of Disability Insurance Can Protect Your Small Business

Should an unexpected, health-related emergency occur, Laver says three types of disability income insurance can protect your small business: Business Overhead Insurance, Buy-Sell Insurance, and Key Person Disability Insurance.

Business Overhead Insurance reimburses a company for overhead expenses in the event a business owner becomes disabled. These policies typically pay benefits for one to two years and help cover expenses like salaries, taxes, employee benefits, rent or mortgage, utilities, equipment, and even malpractice premiums. Because you will receive a monthly stipend for fixed overhead expenses, you may not need to deplete your savings account or dip into existing cash flow or take out loans to keep the business afloat. You’ll preserve your assets and also retain the value of the business by maintaining good relationships with clients, creditors and employees.

Disability Buy-sell Insurance provides funding to remaining business owners to allow them to purchase the insured’s share of ownership in the business at a previously agreed-upon price in the event of a permanent disability. In this situation, the owner may be defined as the business or a trust. Otherwise, each owner may own a policy on the other owners. These agreements can also be funded with life insurance to guard against the death of a business owner.

There are some important aspects of Disability Buy-sell Insurance to consider: the amount of funding depends on the value of the company; the disabled partner must be completely disabled; ownership percentage must be fairly equal among the partners; benefits payable from the buy-sell policy are tax free, and the disabled owner is taxed only on the capital gain from the sale of the business.

A third type of insurance, Key Person Disability Insurance, can provide business owners with the financial flexibility to either hire a replacement or work out an alternative arrangement when a key employee is unable to work due to a disabling illness or injury.

Laver says, “Contact your local insurance professional about disability income insurance. He or she will conduct a comprehensive needs analysis and help you find the right disability products to fit your specific business needs.”

Creative Financial Group (CFG), one of the financial services industry’s leading firms and the recipient of many prestigious industry awards, is a full-service financial services firm offering a broad array of financial products and services. CFG’s in-house specialists offer comprehensive solutions in such areas as retirement and estate planning, disability income protection, business succession strategies, tax planning, employee benefits and investments. The firm is located at 16 Campus Boulevard in Newtown Square, Pa. For more information, visit: www.creativefinancialgroup.com or call 610-325-6100.

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DISABILITY INCOME INSURANCE; A SMALL BUSINESS REAL LIFE STORY

Growing Their Insurance Coverage In Tandem With Their Prospering Business, Partners In A Small Pennsylvania Technology Company Used Disability Buy-Sell Insurance To Avoid Financial Catastrophe When Devastating Illness Unexpectedly Struck

Thirteen years ago, two partners in a small Pennsylvania IT company took out a group health insurance policy for themselves and their 15 employees. Although group health insurance was initially their main concern, they also enrolled in a basic group disability policy and, later, a term life buy-sell policy for each of the partners.

As their business continued to prosper, they worked with their financial advisor to extend their insurance protection, including structuring a buy-sell disability policy as a funding method to provide $2.5 million in buyout protection to each in the event either experienced an unexpected, catastrophic illness or injury.

Five years later, the unexpected happened, when one of the partners was diagnosed with Parkinsons and soon was unable to work. Suddenly, the buy-sell disability policy became the most important piece of the partners’ financial plan. The sick partner and his young family were financially protected by his $2.5 million buyout, which will be completed in January 2014. He additionally receives substantial tax-free monthly disability income insurance payments from the individual protection that was implemented, as well. Utilizing the buy-sell policy, his partner is completing the buyout that is completely funded by the insurance provider, and their business can continue to prosper.

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