Disability Insurance
What is Disability Insurance?
Disability insurance is a form of health contract issued by an insurance company
to an individual, group or association, which will pay periodic payments to replace
income when an insured person is unable to work as a result of illness, injury or
disease. There are a variety of elimination periods, benefit periods,
definitions of disability and optional riders.
Disability insurance is also referred to as "salary continuation' or "paycheck
insurance".
Types of disability contracts include: Individual, Business Overhead Expense,
Salary Continuation Qualified Sick Pay Plan, Buy-Sell, and Key person.
Business Overhead Expense Insurance (BOE) - BOE Insurance offers
reimbursement protection subject to certain limits to cover specified monthly
expenses actually incurred by the insured business. Typical covered expenses
would include rent and utilities. It is generally appropriate in a small
business situation where the disability of an owner would have a dramatic impact
upon the business being able to remain open.
BOE policies are issued through age 60 and they're generally non-cancelable to
age 65, with no increase in premium. As long as the individual continues to
work full time and incur business overhead expenses, the BOE policy will be
renewable for life.
The BOE policy also offers an accumulating benefit feature to help get the most
from coverage if expenses vary from month to month. If the covered expenses
exceed the maximum monthly benefit with the BQE policy in a given month, the
additional expenses can be carried over to a future month when the benefit limit may
not be reached.
Salary Continuation Qualified Sick Pay Plan - A salary continuation
qualified sick pay plan is a simple agreement whereby an employer agrees to continue
some portion of an employee's wages during a disability. To be sure that a
plan qualifies for tax-advantaged treatment, it must; 1) be in effect prior to
the event of disability, 2) be detailed and known to all covered employees,
and 3) be established for employees. Various plans can be set up for
different levels of employees.
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