Executive/Key Person Benefits
Which employees might affect your bottom line if they leave, become ill, or meet an untimely death? You may want to put in an executive compensation plan, disability or long-term care plan, or life insurance plan. Better yet, you may want to make the company a beneficiary of the disability or life insurance plan your bank may require it.
Whatever the case may be, well help you get it done.
Lets examine a company disability plan. In order to properly plan for any corporation you need to make some decisions first.
Who will pay the premiums for the insurance?
100% employer paid
100% employee paid (voluntary)
Payroll deduction (shared cost)
What type of disability insurance will be used?
All individual plans
Group long term disability
Combination of both
Who will be covered?
Specific classes of employees
Just key employees
There are several things to consider when deciding the answer to this question. If the plan will be 100% employer paid than your corporation will receive the best possible offer from the insurance company. If your corporation is over 35 people, it is very possible that everybody can get coverage on a guaranteed issue basis. This is vital to get people coverage that may have health problems which would normally preclude them from the insurance. A voluntary plan obviously transfers the costs of the insurance away from the corporation to the employees, but it will also increase the risk of anti-selection to the insurance company. Therefore each policy will be underwritten, and anybody who is deemed to be an adverse risk will probably not get coverage. A payroll deduction plan is always a nice mix of the two, more people sign up for the coverage, thus decreasing the risk of anti-selection to the insurance company, and increasing the underwriting offer to your company.
What Type of Coverage?
There are basically two types of disability insurance coverage available. Group long-term disability insurance is inexpensive when compared to individual policies, however like anything else in life, you get what you paid for. Group policies tend to have strict definitions, and pay in fewer actual claims scenarios. Individual policies will have rate guarantees to age 65, more liberal definitions, and pay more money in more claims scenarios. For corporations that have the budget available, you cannot go wrong in buying individual policies for everybody. You would be providing your employees with the best possible coverage in case of an accident or injury. If money is a large factor in your decision, as it is in most cases, than group ltd may be the route to go. One of the more common scenarios is a blend of the two. The company purchases group LTD for all employees up to a certain level, and supplements this plan with individual coverage for their key employees.
Qualified Sick Pay Planning
For the corporation that has the money to self-insure against disabilities, it is a requirement to have an established qualified sick pay plan. There are several Internal Revenue Codes one must adhere to when going this route, and some serious financial assessment needs to take place even before the decision is final to self-insure against disabilities. FASB 112, a new change in the general accepted rules of accounting, requires companies to list the present and future values of any disability claims as a liability. For a publicly traded company this can generally cause serious harm. Think about the present and future value of a disability claim on a man who is 35 years old, and has been insured by your company for $5,000 a month. If you pay him benefits to age 65, every month, this claim could be in the millions. Many larger corporations have decided to transfer this risk to the insurance company in recent years. Feel free to contact us to discuss any QSPP's, and self funded disability plans.