DISABILITY INSURANCE

Whether you own an individual disability insurance plan or have group disability insurance coverage, disability insurance is critical during working years, when you rely on earned income. Disability, or income replacement insurance, is designed to replace your income if you are unable to work because of illness, or injury. This primary financial need should be met first, before you purchase other living benefits coverage.

Typically the insurance will replace between 60% to two-thirds of your regular earned income. This disability income gap, as it’s called, is designed to encourage you to return to work and your full earning capacity as soon as possible. In most cases, coverage is sufficient to meet basic living expenses, but there may not be enough money to make regular RRSP contributions or save for your children’s education.  If you have any extraordinary disability expenses, of If your spouse has to take time off to care for you or the children, you might be forced to dip into your savings or borrow money to supplement your disability benefits.

INCOME LOSS REPLACEMENT PLAN (ILRP)

The Income Loss Replacement Plan is an arrangement between an employer and employees that provides the employees with an income during disability. This arrangement may be formal or informal. The employees are insured under individual contracts of disability insurance pursuant to a common plan. The ILRP is an alternative method of grouping individual disability income policies without the use of a Health and Welfare Trust. An ILRP may be established for as few as 2 employees.

The Basics of an ILRP:

1. The employer is the owner of the individual disability contracts
2. The premiums are paid by the employer and are deductible business expenses
3. The premiums paid by the employer are NOT taxable benefits to the employees.
4. The disability benefits under the policy will be paid directly to the employee.
5. Any disability benefits received by the employee while a member of the plan will be taxable.

DISABILITY COVERAGE FOR BUSINESS PROTECTION

Business Overhead Protection:
A Business Overhead Expense policy is designed for principals of closely held businesses or practices and owners of small businesses. It is an expense reimbursement policy that covers those fixed monthly business overhead expenses required to keep the business viable until the return of the owner, after a period of disability. This allows the business operations to continue until the insured either returns to work or makes a decision regarding the future of the business.

It is most vital with businesses and practices in which the owner’s ability to come to work makes the difference between the office being open or closed for business. Ideal prospects are physicians, lawyers, accountants, engineers and other individuals who own firms that depend on the owner’s ability to generate income to pay the bills.

All of these features, plus the fact that premiums are tax-deductible as a business expense, make the Business Overhead Expense policy a key component of any business owner’s financial security plan. It ensures that business continues when a disability occurs.

Disability Buy Sell
Funding of Buy/Sell Agreements (Disability, Life and Critical Illness coverage)

These policies are designed primarily for partnerships and professional corporations comprised of two to five principals. Consideration may also be given to corporations and partnerships with six to ten principals.

These agreements are most often found within:

Public corporations, husband-wife combinations, parent-child combinations and other relationships that do not meet the “arms length” test may be ineligible for Buy Sell insurance policies.

The business should be operating, or the partners associating, for at least three years. The business must also have a net worth of at least $50,000. 

The owner of the policy may either be the corporation or partnership (entity purchase), or alternatively each owner can own a policy on each of the other owners (cross purchase). The entity purchase may be preferred when there are more than two owners involved as a means of reducing the number of issued policies. The existence of a formal buy sell agreement is highly recommended.

INTEGRATED BENEFITS

Managing the Costs of Employee Long-Term Disability (LTD) Programs

Attract and retain . . . attract and retain . . .

As HR professionals, it is a mantra that we are all too familiar with.  Our critical Labour shortage has created a climate where employers need to implement unique strategies to attract and retain key employees – one of the most important is benefit program enhancements.  Employees ranked compensation and benefits as the top two factors required for job satisfaction in a survey conducted this year by the Canadian Society For Human Resource Management. 

As the trustees of their employees’ LTD programs, employers are adopting non-traditional benefit plans. These provide the stability and breadth to manage employee expectations and emerging demographic trends. 

The baby boomers turned 60 this year and careful consideration is being given to the consequences on LTD premiums.  Companies are  losing  intellectual capital as the boomers start to retire; but with 75% of all LTD claims occurring between the ages of 55 and 65, companies are also faced with what are forecasted to be, unprecedented LTD premium increases. 

"Combo" Long-Term Disability Plan Trends

Traditionally, employer sponsored benefits include a mandatory group LTD program.  These plans are subject to annual renewals whereby premiums are adjusted according to the group’s claims experience.  To manage demographic and critical illness incidence trends (Cancer is the leading cause of LTD claims), employers are implementing cost management tools such as integrated Long-Term Disability strategies. 
Combining individual LTD contracts with group programs (typically 50/50 policy split) allows employers to secure locked in premiums, guaranteed contract provisions, and higher non-medical maximums until an employee is 65. 

Group LTD

1. advantage of low cost without compromising quality.

Individual Disability

1. offers enhanced product features
2. guarantees the contract provisions until age 65
3. premium rates guaranteed to age 65 (not subject to annual renewal)
4. fully portable

Working with specialized benefit providers to find creative solutions to these challenges will enable companies to contain costs, meet employee expectations and align with core business strategies.

Key Person Protection

Key Person Protection is designed to provide coverage for a financial loss to an employer due to the disability of a key person. 

A key person is an employee whose services are of such a nature that the owner would suffer substantial financial loss due to the employee’s total disability.

These employees offer their employer knowledge, skills or talent that few others can imitate or duplicate. The industry they work in or the nature of their work may be so specialized that there are few others with the skills needed. Many of these occupations have a component of design or research to them. Typically, the unique skills possessed by a key person are not totally acquired through education or even experience but are attributable in part to their own creativity, talents and interests.

Disability Business Loan Protection
Business Loan Protection policy has been developed to make funds available to pay outstanding business loans and loan interest when the business owner becomes totally disabled.

The company must be a partnership, sole proprietorship or professional corporation which has been in business for at least three years with a net worth of $50,000. The insured must have at least a 25% ownership interest. Examples of eligible loans include loans for equipment, property and buildings used for the sole purpose of operating a business.

The lump sum plan also covers lines of credit and account overdrafts.

Retirement Protection:

You, rely on the income you earn to cover personal living expenses and business expenses, but also to invest for retirement years. A sudden, unexpected accident or illness can dramatically affect your ability to earn an income and meet current financial obligations. A disability can also have a drastic impact on your ability to invest for the future.
In the event of disability, personal living and business expenses can be paid by benefits from income replacement and office overhead disability insurance. But what would happen to retirement savings? Not surprisingly, retirement savings are one of the first casualties of disability. Not only is funding curtailed, but you may even need to dip into the funds that had previously been set aside for the future.

In the past, many Canadians have been able to count on government benefits as their main source of income during retirement. However, as the population ages, most Canadians recognize that they must put aside funds for their own retirement years as they can no longer completely depend on publicly funded pension programs. The need for  protecting savings against the devastating affects of a disability has never been more important.

No financial plan is complete without guaranteed funding for retirement. You can do this by using a top quality disability plan designed for this purpose. A Retirement Protection Plan helps you maintain deposits to a retirement savings program while disabled.

For more information please contact us at at 604.687.7773 or email solutions@customplanfinancial.com