A Sneak Peek inside the Disability Insurance Course (Part 3):

PART 3 - DISABILITY INSURANCE CLASS

Our main goal at Slater All Lines Insurance School is to teach our students the information they need to pass the Washington State Insurance Producer Exam. This is Part 3 of our new Insurance Exam Sneak Peak series. We want to provide students with an inside look at some of the topics covered in our Insurance Exam Classes.

How might a business benefit from different types of Disability insurance policies?

• Buy-Out, a.k.a. Buy-Sell, is an agreement to buy out the interest of a partner or a persons’ interest in a firm, following a disability. A Disability Income policy would fund the buy-out agreement. Disability Buy-Sell coverage can be designed to provide benefits to a corporation to buy out a disabled stockholder’s or director’s share of the business. The policy will generally pay an installment benefit to the corporation for up to a year and then finally pay out a lump sum benefit to the corporation so it can buy out the disabled partner. Premiums are not tax-deductible; however, the benefits are received tax free.
• Business Overhead Expense: Disabled individuals not only suffer a loss of income but also may incur a loss because of continuing business expenses. This situation frequently arises among self-employed persons such as doctors, lawyers and insurance producers.

Business Overhead Expense is designed to cover routine overhead (e.g., rent or lease payments, utilities, advertising, etc.) and wages. The purpose is to allow the business to keep its doors open and the business intact until the owner returns or is able to sell the business. Benefits usually are paid for 1 or 2 years. BOE premiums are tax-deductible to the business, and thus the disability benefits received are taxable to the business. However, the taxable benefits are then used to pay tax deductible expenses.

• Key Person/Partner insurance protection replaces the income lost when an essential employee, who can also be the owner, is unable to work. The policy pays benefits directly to the business to help fund the hiring and training of a replacement.
• The policy is owned by the business
• The premium is paid by the business, but is NOT tax deductible
• The business is the beneficiary, and receives an income tax free benefit
• The person (usually an employee) is the insured
• The key person (insured) must qualify for the coverage