This may sound counter intuitive to placing employee group benefits, but it’s not. To my mind, disability is the most important aspect of an employee benefit plan. It is the protection of salary when a person cannot work.
The critical theme is “employee”
While business owners are technically employees of their own corporation and they too need to protect their income, a group benefit plan is not the best vehicle for doing so.
The basics of a group Long-Term Disability benefit is designed to provide a regular income (monthly) to replace lost income (not revenue) due to a lengthy disability resulting from disease or injury.
· Benefits begin after the waiting period where the employee was continuously and totally disabled and continue until an employee is
o no longer disabled according to the terms of the policy,
o to the end of the benefit period or
o to age 65, whichever comes first.
· Most plans will be set:
o utilizing a percentage of salary formula based on 66.67% of gross monthly earnings
o to an overall maximum,
o usually including a set non-evidence maximum
o which will also take into consideration the 85% all-source rule of the pre-disability take home pay, whichever is less
An employee is not considered disabled if they are able to perform a combination of duties that regularly took 60% of their pre-disability time.
Income matters
In a typical organization, the owner, albeit an employee of the corporation, may actually qualify according to the criteria above except in one vital and often overlooked area—their income. If the income received does not come to a full and complete stop, the same as it would for any “at arms-length” employee, then the disability insurance under the group plan will not pay.
This means all the premium paid into the coverage would have been for nothing and would have been better utilized in personal or corporate insurance which includes a mechanism for this exact situation.
Example
Consider a legal or accounting firm that has on staff many professionals who have their own Professional Corporation (PC). They do not meet the definition of a standard employee and while they may be eligible (provided they are classed accordingly) for participation in an employee group benefit plan, this should not include inclusion in the disability program because it is their PC that receives income, not them personally, therefore there is no income to protect.
Claim denied.
Premium wasted.
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Note: this was written without the aid of Artificial Intelligence (AI)
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