In the most fundamental teachings of life and health insurances, we learn early on that life insurance creates an immediate estate and annuities assist in liquidating an estate. But what financial tool safeguards an estate during those oh so important income accumulation years while a person’s economic interests build, ride the inherent market ebbs and flows, rebound if necessary and hopefully grow a substantial wealth foundation to leave to future generations? The answer is disability insurance of course.
Widely accessible and sophisticated savings vehicles like 401(k)’s, Roth IRA’s, annuities and cash value life insurance programs allow Americans to begin planning for secured financial futures. These plans have proven to permit reliable income streams beyond volatile high-yield market investments and sedentary, sluggish bank savings and money market accounts as well as social security benefits, a program that’s future and longevity are highly suspect.
Although reputable savings vehicles are readily available to corporate America, the sad reality is that most Americans still don’t save enough in earned assets throughout their lifetimes and typically live paycheck to paycheck or close to it. Exacerbating this frequent dilemma is that little significant regard is given by most to financial planning beyond their working years. This is a predicament that can absolutely become an economic catastrophe when a working individual suddenly or even gradually becomes disabled during that ever-so-important first half of life, the years when wealth is typically accumulated.
Most of us work for a living to earn a regular paycheck, providing food, shelter, clothing, education, healthcare, other insurances (including life and disability) and transportation—the usual requisites of successful living in this country—for ourselves and our dependent families. Hopefully, after the bills and taxes are paid, a portion of income is leftover for simple luxuries, perhaps vacation travel or to be dutifully deposited into a savings vehicle. We are dependent upon our paychecks to not only provide for us today, but to allow the aggregation of wealth that will not only provide for comfortable lives in our senior years, but also the ability to maintain a looked-after and planned estate.
But asset building and income savings only happen when there is an inflow of cash. Trouble begins when the anticipated earnings halt or are completely terminated, which is a common result of disablement. Without proper disability insurance and income protection, there is no sufficient planning for a survivable estate. You can’t plan for the future without safeguarding the present.
The greatest weapon in combating short-term, long-term, partial, total, temporary or permanent physical incapacitation due to sickness or injury is comprehensive disability income insurance prescribed in sufficient amounts. Personal disability insurance programs come in many shapes and sizes, but most industry experts agree that a layering of multiple “own occupation” defined income protection insurances to at least 65 percent of personal income is adequate, providing continuation of at least a semblance of one’s pre-disability lifestyle.
The layered effect of income protection typically takes shape under varying tiers of employer-sponsored group disability programs, individual disability plans as well as specialty-market excess, high-limit disability platforms or some reasonable combination thereof. Importantly, insurance company disability benefit calculations typically allow for the inclusion of 401(k) employee contributions, keeping much of an earned salary intact including retirement allocations when an employee becomes disabled.
Personal disability insurance is the foundation of sound financial planning, retirement planning and estate planning as it provides the first line of defense of income, and financially safeguards the consumer’s arduous journey to saving for future life stages and beyond.
Ancillary income protection products from specialty-market carriers can also assist in directly fortifying an estate. The Lloyd’s of London market offers bespoke programs like retirement funding completion insurance as well as stock option protection insurance. Both of which protect career earnings to thwart off retirement-benefit collapse in case of premature disablement.
Retirement funding or pension completion insurances are standalone defined-contribution protection plans that provide an insured person with a lump sum of cash for the anticipated balance of aggregate retirement plan contributions at the time of permanent disablement. These resources are unique in that both employee and employer contributions may be included in the benefit calculations.
The stock option protection plan is a standalone disability program that insures anticipated stock option awards for those working for publicly-traded corporations who would stand to lose future stock option compensation in the face of disablement. A stock option plan pays a permanent disability lump sum benefit equivalent to a multiple of anticipated annual stock option awards.
Personal estate planning can also be heavily influenced by business assets. Business owners have additional fiduciary needs and potential financial liabilities when considering business succession and how their physical demise could negatively affect their employees as well as their business partners.
Business loans and corporate debt can certainly pose economic shortfalls for companies faced with the pending physical loss of an owner. Disability products like loan indemnification insurance and business overhead expense coverage are available to clients in addition to their personal disability benefits. Both assist in covering outstanding business liabilities including utility and insurance bills and payroll costs while allowing business owners to keep their personal disability benefits intact and appropriately earmarked for familial needs.
From a business owner’s perspective, much of the planning done to meet estate asset goals falls under the category of succession planning. Agreements are made and contracts are drawn-up with business partners, trusted employees or interested third parties to settle corporate loose ends and eventual buy-outs of ownership interest in case of an owner’s total disablement.
Key person disability insurance is an incredibly flexible tool when it comes to succession planning and business continuation. The product provides monthly, lump sum or a combination of benefits, so a business hit with the typically devastating loss of a marquee owner can survive and navigate often unfamiliar terrain before an eventual buy-out of the disabled owner takes shape. Key person policies pump in much needed stabilizing capital which is often used to secure replacement staff, to cover recruitment costs or to help maintain revenues after the sometimes-inevitable loss of key accounts.
But as a key person plan assists in business needs of the short-term, a buy/sell disability policy is the anchor of the succession plan. Designed to fund the buy/sell agreement between business partnerships and other corporate structures, an executed buy/sell disability policy provides cash payments over a scheduled period of time or in a hefty lump sum for the purchase of the corporate shares of the disabled owner, thus allowing a prudent and financially successful move into retirement and the stabilization of a business owner’s estate and taxation liabilities.
The purpose of financial planning is to provide a client with a solid foundation of diversified savings, asset management and growth as well as insurance services to maintain a comfortable level of financial freedom into retirement as well as safeguarding accumulated assets that will eventually be passed on after death. Disability insurances for both personal and business needs are a big part of that foundation by protecting those assets and that savings from the devastation of physically losing the ability to work and earn that accustomed and necessary paycheck. You can’t properly manage and guard an estate without sufficient disability coverage.
