Suppose your top producer had a terrible accident this very afternoon. Your best employee is hospitalized with broken bones all over their body. Their doctor demands 6 months bed rest and physical therapy. And, that is a best case scenario.
YIKES! What would you do? How would your business continue to produce and function?
Recently, we discussed the importance of key employee insurance in case one of your top people died. After painting this tragic scenario at the beginning of this article, we believe you can see that the death of a key employee isn’t the only thing that could harm your business. So, what do you do in the case where a key employee is out of commission for an extended period of time? The answer is key employee disability insurance.
Key Employee Disability Income Insurance
- Exactly what is key disability insurance?
- How does it work?
What Is Key Employee Disability Income Insurance?
You recognize that losing a key employee for several months or even permanently due to a disability, could hurt your business financially. This is where a key employee disability policy comes in. Simply put, it pays you, the business, anywhere from 40% to 100% of the disabled employee’s earned income while they can’t work.
This will help to offset your business expenses in coming up with a temporary solution until they are back on their feet again.
What if you are the sole proprietor and you become disabled? Or your partner becomes disabled?
Think about investing in a business overhead expense disability policy then. What does this do?
It pays, up to the policy limit your office expenses including:
- Rent
- Utilities
- Salaries
- Depreciation
Reach out to a specialist here at InsuranceHub for a free key disability insurance quote today.
How does a key employee insurance policy work?
So lets say you identify John as your key employee. The first thing you need to do is to take out the policy on John and pay the premiums each month before he is disabled. Then, John unfortunately has the accident we opened with in this article. What happens next?
- You first have to wait out the policies elimination period
- This is generally a waiting period between the time the disability occurred and when the benefits begin to be paid out to the company
- Depending on your plan, it may be anywhere from 30 to 180 days. So plan accordingly.
- The insurance company will then pay out monthly anywhere from 6 to 18 months depending on your policy.
How much does the disability insurance cover?
That is up to you and the policy you choose. These benefits are usually a certain percentage of the employees monthly pay, up to either a maximum monthly limit or 100 percent of that salary.
What can you do with the money?
That is entirely up to your business:
- Use it to pay the operating expenses of the business
- Use it to to cover the expense of finding a temporary or permanent replacement for the key employee
- Choose a policy with a long enough payout time to allow the key employee to return to work or to allow the company to replace the key employee if they become permanently disabled
- Use it to cover advertising costs, employment agency fees, and the first 3 months of the new employee’s salary
Is this tax deductible for my business?
Unfortunately key employee disability insurance is not tax deductible. You cannot write key employee disability premiums off as a business expense. However, this generally means that payouts in time of disability are generally not taxed either. We suggest that you talk to your accountant about your situation.
Are you ready for a free key man disability insurance quote? Contact the experts at insurancehub.com today.