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Disability Income Insurance in Your Business

"The only difference between a problem and a solution is that people understand the solution."
Charles Kettering

Problems come with the territory when you run a business. If you are like most business owners, you spend your day looking for solutions to problems, big and small — from the big-picture challenge of keeping income one step ahead of expenses to nailing down the fine-point details of your company's compensation package. One solution to a range of potential problems is a product known as disability income insurance.*

*Disability income policies are underwritten By UNUM Life Insurance Company of America and Provident Life and Accident Insurance Company. Not all companies do business in all jurisdictions. Disability income in New York: Policies are underwritten by first UNUM Life Insurance Company Provident Life And Casualty Insurance Company and the Paul Revere Life Insurance Company.

Disability income insurance is a versatile business tool that can provide business solutions to at least three situations:

    Solution 1
    Disability income coverage can help meet the need of competitive employee benefits for everyone on your payroll. This is an attractive, win-win benefit that can protect employees, boost morale, and relieve the company of its ethical (if not contractual) responsibility to keep disabled employees on salary.

    Let's look at this benefit in context with an example. Dan is a young, up-and-coming executive earning $40,000 a year. He loves to work almost as much as he loves his wife and three children. The owner appreciates Dan and sees a bright future for him. Unfortunately, one evening, while driving home after working late, another car runs a stop sign and broadsides him. Seriously injured, he will be unable to return to work for at least a year.

    Though the company has no legal responsibility in this matter, they would have a hard time turning their back on Dan and his family. Still, it would be impossible for the business to keep a disabled employee on the payroll. Thanks to a company-sponsored disability income policy, Dan will receive $2,000 a month (60% of his salary) for up to five years. As a result, though this will still be a tough time for Dan and his family, he has an income. Just as important, the company can adopt a wait-and-see posture — attempting to keep his position open as long as possible — while not having to pay him a salary while he is out on disability.

    Solution 2
    Disability income insurance can help meet the need for deferred compensation funding for you and other key employees. Many business owners use deferred compensation packages to assure themselves a regular income at their own planned retirements. These packages are also used as "golden handcuffs" to attract and retain key non-owner employees (by promising X years of income at retirement under the condition that the employee must stay with the company to that time). Deferred compensation agreements may also include life insurance. This helps guarantee that, if the executive dies prior to a certain date, his or her spouse or other beneficiaries will receive either an ongoing income or a lump sum.

    What if this key employee becomes disabled, however? The result can be confusing and result in financial suffering, unless the plan includes a disability clause, funded by a disability income policy — another simple solution to what could have been a perplexing problem. So, if you have a deferred compensation plan in your business, be sure it includes disability income insurance.

    Solution 3
    Disability income insurance can help meet the need for funds to execute a buy-sell agreement. Most buy-sell agreements address a change in ownership at either the owner's retirement or death. However, disability is perhaps a bigger risk, especially if the buy-sell agreement involves partners or co-owners.

    Once again, an example can illustrate the point. Mary is one of three co-owners of a design business. They have a buy-sell agreement that includes a disability clause, funded by a disability income insurance policy. At age 43, Mary becomes disabled with a degenerative illness. By 45, she can no longer work. Thanks to the agreement, her two partners receive control of the business, while Mary receives an income provided through the disability income policy. Once more, a serious financial dilemma is averted.

    The Bottom Line
    Disability income insurance can be the solution to a number of business problems. However, it is important to take action before the problem appears.

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New York Life Insurance and Annuity Company does not provide tax, legal or accounting advice. Please consult your own tax, legal or accounting professional before making any decisions.

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Disability Income Insurance in Your Business

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