Disability Insurance

CHANCES OF DISABILITY ARE GREATER AT THE TOP OF THE CORPORATE LADDER PROFESSIONAL 3.6 TO 1 OFFICE WORKER 8.2 TO 1 ON THE ROAD 14 TO 1 BLUE COLLAR 16 TO 1 • STATISTICS FOR MALE AGED 35

The average disability that lasts three months will continue on for five years. Therefore, even one such occurrence can have a devastating impact on a business and on the co-owners and shareholders of the business. Not only will the individuals’ skills, knowledge and contributions to the business need to be replaced, but the disabled co-owner will still expect their income to be maintained. This will have a detrimental impact on both the business itself and on the relationship between the co-owners.

The advantages of having insurance funding in the case of a disability of a business owner are as follows:

• This can also be considered a salary-continuation plan, thus giving owners the peace of mind that their salaries will be maintained should anything happen to their well-being.
• The burden of determining when a disability has occurred and when the payments should begin is transferred to the insurance company and not the remaining co-owners.
• Shareholders can also have assurances that their salary will be continued during a period of disability, regardless of whether or not the business itself remains successful.
• The cost of the plan is predictable to the business, and the business will not be required to continue the disabled shareholder’s salary payments as that will provided by the insurance company. Therefore, the business can use the money that was previously paying the individual’s salary toward hiring and training replacement personnel to ensure that the business continues to run smoothly.
• If the business provides the insurance and pays the premiums, these premiums will be deductible by the business and the insurance proceeds will be received tax-free by the business.
  




Recent statistics reveal that a firm established by two 35-yer old co-owners faces a 75% probability that at least one owner will sustain a long-term disability before age 65. If the firm was formed by six or more co-owners, it is almost a certainty that at least one long term disability will have to be faced before the owners reach age 65. Since the average disability lasting three months will continue on for five years, even one occurrence will have an extremely negative impact on the success of the business.

As the primary purpose of salary continuation plans is to ensure the maintenance of the owner or shareholder's standard of living during a period of disability, it should not matter whether the insurance is provided from the corporation or individually. However, it is important to keep in mind the tax implications. If the corporation provides the insurance and pays the premium, these premiums will be deductible by the corporation and the insurance proceeds will be received tax-free by the corporation.