Disability Belongs In Small Business Plans

Failure to plan for a disability buy-out can result in “an absolute nightmare,” says Eskra. He has seen this “nightmare” situation a number of times. A planner will develop a buy-sell plan for two business owners and fund the buy-out with life insurance. The buy-sell agreement is usually written to say “death or disability of one of the owners.” As a result, “if one of the owners becomes disabled, they now have an enforceable buy-sell agreement and theres no funding for it,” he says.

Keeping the business running, while providing income for the owner, and capital to transition the business is a key need that all business owners have when faced with the prospect of total disability. When a plan is in place, all these concerns are addressed, adds Halperin.

When working with one of his clients, a surgeon, Halperin uncovered a significant need for disability coverage. “Here was a doctor making $300,000 a year with very little in the area of disability and disability overhead,” he says.

Halperin urged the doctor to purchase the maximum benefit available. After paying premiums for four years, the doctor was diagnosed with multiple sclerosis. Eighteen months later, he filed a claim for total disability. “He had enough disability insurance to cover all of his expenses, his childrens education, his office continued to operate, and he was able to find a young doctor to come in and take over the practice,” Halperin says.

“Doctors are usually very receptive to disability coverage,” adds James Jacobs, Jacobs Financial Group, Chesterfield, Va.

Jacobs explains one situation he had with a client, a pediatrician who was in great health. “He didnt see any reason to buy disability insurance, but I convinced him that he should,” he says.

Several years later, the doctor was diagnosed with liver cancer. “He went out on permanent disability and never recovered. We started paying benefits and he expressed to me on several occasions that this was the greatest insurance he had ever seen,” he says.

Jacobs notes that his client passed away exactly 12 months to the day he started receiving benefits. At that time, his family had just received another check from the insurance company. They contacted Jacobs to see if they had to return the check. Fortunately for them, Jacobs says, the policy contained a spousal transition benefit. “The policy had a special provision in it that said if you received benefits for 12 months, when you died your spouse would get benefits for another six months,” he says.

Furthermore, while Jacobs client was receiving disability payments, Jacobs was able to put him in contact with some of his other clients who were pediatricians. “We put the whole deal together and sold the practice,” he says.

In an industry that can tell countless success stories of the benefits of disability protection, why do many agents continue to overlook this area of planning? “It might be a training issue,” notes Halperin.

There have been a lot of changes in the disability insurance industry, he says, and perhaps there isnt enough emphasis from the agency level to focus on this area. “I dont know if they want to get involved enough in it to study all the products,” says Halperin.

Agents looking to address the disability planning issues for their clients need to learn more about the products available and need to get more training, he says.

“The education of a planner is important, and when you see enough of these claims you understand how important disability really is,” Halperin says.

Disability insurance is not a product business owners go out and buy, he continues, its sold by professionals who illustrate the need for the coverage. “You have to illustrate the need,” he says. “If you dont, then theres no need to create the solution.”

Even for those planners who do not want to expand their practice into the disability market, “it behooves you to mention these other areas, even if you dont offer it and you dont cover it, you should talk about it,” he says.

Reproduced from National Underwriter Life & Health/Financial Services Edition, September 15, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.