Life and Disability Insurance

Tom WallaceLife Insurance

Life and Disability: The Problem

Life and disability insurance is underutilized by business owners and they have more of a need than the average person. Death or disability has family consequences and business consequences that can magnify an already trying situation.

Unless required to purchase either life or disability insurance, most business owners do what is the typical response, not buy the coverage or buy far less than needed. Requirements often get tied to bank financing but after that the requirements are few and far between.

Fact is most business owners spend more time and money buying coverage for their employees. Owners participate in group offerings, perhaps with a carve out for more insurance limits, and in the end are covered much like their employees. Problem is their need is dramatically more than many of their employees.

We know death will occur but perhaps not while the business is owned or operational. Disability is much harder to anticipate. In both cases, they feed inertia and with no outside force pushing for the purchase it does not get done.

So what can the businessowner do to at least hedge their risk without having to buy more insurance policies?

Life and Disability coverage in Existing Insurance

The typical businessowner often has these policies available to them:

  1. Business Property & Casualty Insurance
  2. Workers Compensation
  3. State mandated disability for employees (where applicable)
  4. Group Life Insurance
  5. Personal Auto Insurance
  6. Homeowners Insurance
  7. Personal Umbrella Insurance

Will any of these provide some type of life or disability insurance? Answer is yes. Out of the list above focus on how you purchase:

  1. Workers Compensation
  2. State mandated disability for employees
  3. Group Life Insurance
  4. Personal Auto Insurance
  5. Personal Umbrella Insurance

None of these are a perfect replacement for traditional life or disability insurance. Injury or death must occur in special circumstances and the limits of insurance may be inadequate to meet the need. However, each can be purchased in such a way that they COULD help if the need arises.

Life and Disability: Workers Compensation

Most states require the purchase of workers compensation, but exceptions do exist. Some states may only require coverage if a certain number of employees work in the business. However, business owners often have the option of including or excluding themselves.

The inclusion or exclusion provisions vary by state and by type of corporate entity. For example, an LLC in some states may exclude the members but they can opt-in if desired. Corporations may include the worker/owner/officer, but they may be able to exclude themselves depending on the number of overall employees.

Owners should check on their current workers compensation status. Check your states maximum weekly wage allowed by state law. How does that compare to what you may need if you were disabled due to a work-related injury? Understand how the death benefit would work and what amount your beneficiaries could potentially receive if you died on the job.

This is a good strategy for on the job injuries but does nothing for off the job injury or death.

State Mandated Disability

Some states require employers to provide some amount of coverage to their employees for off the job injuries (or pregnancy). If owners are employees, check to be sure you are covered. This coverage is often minimal from a state law perspective. However, many insurers can improve upon mandated offerings. Trouble for many reading this article, your states do not mandate the coverage so it may not be an option for you.

Here are the states that mandate this coverage:

Group Life and Disability

This type of insurance is pretty typical in most businesses but if not in your company definitely check it out. Group life insurance is inexpensive and a great benefit that can really save you and your employees. Most people are under insured by a large amount. I personally have seen a few cases where the lack of life insurance has significantly altered beneficiaries lives and it is a shame really. These are guaranteed issue type policies and limits can vary from flat amount offerings to multiples of salary.

Group disability is different and will be more expensive than life. Short term, long term or both can be purchased. Make sure you clearly understand the definition of disability, waiting periods, coverage amounts and maximum periods of disability. It is worth checking out because these are not tied to work related injuries and many states do not mandate this kind of coverage.

Personal Auto Insurance

Another policy that goes unnoticed in this decision process is plain old auto insurance. Unfortunately there is a lot of state specificity to the purchase. Is your state a No-Fault state? If so, buy as much as you can because death or disability in an auto accident is a huge risk, we all take.

If you don’t live in a no-fault state, all is not lost. Also check out your uninsured and/or underinsured motorist coverage. Also, very specific for injuries or death sustained when in an auto accident with a driver with no insurance or not enough to cover your injuries. Not a common situation but I can tell you they do happen because I have seen them. Very inexpensive to purchase so check it out.

Personal Umbrella Insurance

Some insurance companies offer an extended amount for underinsured or uninsured motorist related accidents. It rides over the amounts purchased in a personal auto policy. Check it out as it is not typically very expensive and gives a far greater limit for these losses, often one million dollars and up.

If you really want better coverage than any of the items above, buy a life and disability policy. They are the only way to get the flexibility and limits of coverage you need. If that is just not in the cards, review what you are already buying and look at it from a different perspective.