Business Uses of Disability Income Insurance

Group disability income insurance coverage is a fairly typical benefit provided to employees by large and medium size employers as part of the benefits package. It is probably accurate to say that this is a benefit employees expect from employers, with the possible exception of smaller businesses. While employees may expect a disability income benefit, the employer does not always pay the full cost of providing this benefit. Some plans require a contribution from the employees to cover the cost of the disability benefit. Or, an employee may have to contribute to the cost in order to receive a greater level of coverage such as disability income benefit payments equal to 60 percent of his salary rather than some lesser percentage paid for by the employer.

Another type of disability insurance is used in conjunction with buy-sell agreements. If a shareholder/employee becomes disabled and, after a certain period of time, it appears that he or she will not recover from the disability sufficiently to be able to return to work, this insurance coverage provides a sum with which the disabled shareholder’s interest in the business is bought out. This allows the shareholder/employee to recover the value of his interest in the business and allows the business to hire a replacement for the disabled person and move forward with its business activities.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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