ESTATE TAXES
PROVIDED BY KEVEN PRATHER, CFBS
When the Worst Happens, Are You Really Protected?
W
illiam, an entrepreneur making around $300,000 a year, suffered a debilitating injury that left him unable to stand—let alone work. For the next ten months, he was unable to do much of anything. Lacking disability insurance, he was forced to take money from his company’s coffers to pay his bills and take care of his family’s financial needs. He also needed to come up with funds to pay for someone to come in and run his firm while he was flat on his back. In the end, he burned through his cash and very nearly went bankrupt. If you don’t think this could be you someday, think again. Do you realize that you may be three times more likely to become disabled for an extended period than you are to die before age 65?
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Do I have the protections in place that I need in order to ensure my personal and professional financial security if I become disabled?
business owners actually have disability insurance protection in place.
Example: Less than one-fifth of entrepreneurs we studied have individual disability insurance—policies purchased by the business owners themselves that can offset the loss of income that would occur from their being unable to work (see Exhibit 2).
• Asking eight key questions will help shed some light on the right type of disability insurance yourbusiness needs,owners’ goalsexpense and situation. entrepreneurs have bothered for to buy disability
Even fewer insurance—which covers business expenses if owners are disabled (see Exhibit 3). These expenses can include rent and property taxes, utilities, leasing costs, accounting costs, business insurance premiums, employees’ salaries and benefits, and other key expenses that help keep the lights on.
6.8%
14.3%
EXHIBIT 3
EXHIBIT 2
Business Owners with Disability Overhead Policies
Business Owners with Individual Disability Policies
Yes No
It’s time to ask yourself a few questions: • What would happen to me, my family and my company if I were to become unable to work? • Do I have the protections in place that I need in order to ensure my personal and professional financial security if I become disabled?
A SHOCKING LACK OF PROTECTION Despite the sizable threats that becoming disabled can present to financial security, few business owners actually have disability insurance protection in place.
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work?
• The vast majority of business owners don’t any type of disability insurance in place A shocking lack ofhave protection to protect themselves, their families and their Despite the sizable threats thatcompanies. becoming disabled can present to financial security, few
While death and taxes are life’s only two certainties, it seems disability may be close behind. Here’s why that’s such a big deal. We’ve discovered that far too many business owners have not taken steps to protect themselves—and their incomes—from the financial carnage that can occur in the wake of suffering a disability.
• You may be three times more likely to become disabled for an extended period than you are to die before age 65. What would happen to me, my family and my company if I were to become unable to
It’s time to ask yourself a few questions:
HVACR BUSINESS NOVEMBER 2020
85.7%
93.2%
Example: Less than one-fifth of entrepreneurs we studied have individual disability insurance—policies purchased by the business owners themselves that can offset the loss of income that would occur from their being unable to work (see Exhibit 2). Even fewer entrepreneurs have bothered to buy business owners’ expense disability insurance—which covers business expenses if owners are disabled (see Exhibit 3). These expenses can include rent and property taxes, utilities, leasing costs, accounting costs, business insurance premiums, employees’ salaries and benefits, and other key expenses that help keep the lights on. Finally, a minuscule percentage of business owners have buy-sell disability insurance, which is designed to allow a partner to buy out another partner who has become disabled and is unlikely to continue in his or her role (see Exhibit 4).
EIGHT QUESTIONS TO ASK BEFORE YOU BUY DISABILITY INSURANCE
Not surprisingly, disability insurance— Yes ance policy. When you buy disability Finally, a minuscule percentage of business No like many other types of policies—can be income insurance coverage, you owners have buy-sell disability insurance, a jumbled mess of terms that create more are essentially buying the insurance which is designed to allow a partner to company’s definition of confusion disability. than clarity. To break through buy out another partner who has become disabled and is unlikely to continue in his or N=513 business owners. Source: AES Nation, LLC N=513 business owners. Source: AES Nation, LLC the noise, start by considering these eight There are three basic definitions: “own her role (see Exhibit 4). occupation,” “any occupation,” questionsandwhen evaluating disability “partial” or “residual” disability. insurance. 2.4% • Own occupation. This 2 refers to the 1. What’s occupation you were working in just the policy’s definition of disability? This is one of the most prior to your disability. If your “own occupation” is protected, important the policy features, if not the most will not require you to work in another EXHIBIT 4 important feature, of a disability insurBusiness Owners occupation. This is also sometimes with Disability ance policy. When you buy disability referred to as “regular occupation” or Buyout Policies “your occupation.” income insurance coverage, you are esYes No
97.6%
N=424 business owners. Source: AES Nation, LLC
Eight questions to ask before you buy disability insurance Not surprisingly, disability insurance—like
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sentially Any occupation. Some policies will buying the insurance companot pay benefits if you can perform ny’s definition of disability. “any” occupation you are suited to, There are three basic definitions: “own based on your education, training and experience. occupation,” “any occupation,” and Partial/residual. Residual “partial” disability or “residual” disability. insurance pays benefits even if you are not completely disabled (and can work part time). Benefits are based on the income you earn www.hvacrbusiness.com working part time, relative to your previous full-time earnings. Partial disability coverage is similar, but loss
