If you had a money-making machine, would you insure it? I’m sure that everyone would answer “Yes.” And rightfully so everyone should insure the money-making machine but unfortunately a majority do not. What I am referring to is insuring your own ability to earn an income. This is an integral and very important component of any successful Business Succession Plan. It has been called many different names. Personal Disability Insurance, Qualified Sick Pay Plan, Key Man Income Protection Plan, Disability Buy-out Programs and Overhead Business Insurance are all of the important concepts you should deal with when writing your Business Succession Plan. We will be discussing all these critical programs. For now, let’s get started with a personal Income Protection Plan or Personal Disability Insurance.
When I offer this concept to both clients and prospective clients, I often hear the comment, “I already have Disability coverage. While in fact some due, they often are referring to government programs. Essentially there are three government programs that really fall short in providing adequate Insurance. Let me list the three with a brief description.
· Worker’s Compensation. This only provides coverage if you become disabled while at your worksite.
· New York State Statutory Disability Benefit Law. This is a requirement for all businesses. However, the coverage, while very inexpensive, is very minimal. It provides 50% of your weekly pay up to a maximum of $340 per week, usually after a 7 day waiting period. In addition, the program lasts for only 26 weeks.
· Social Security Income. In the past it was very difficult to qualify for this type of income protection. While more are currently covered under this government program, it is still very difficult to qualify. One must have a condition, physical or mental, that prevents you from engaging in ANY substantial gainful activity. In addition, the average disability income from Social Security in 2013 was $1,177.
Thus you can see these government programs are very limited in income amounts and quite restrictive in qualifications. We therefore encourage everyone, especially business owners, to examine the benefits of a Group and/or Personal Disability Program.
Next we will discuss the scope of a Personal Disability Plan. Before I leave, let me say I know what you are thinking because I hear this from clients everyday. “Wow. This is really overwhleming!. I do not know where to begin.” Yes, it is a daunting task. My answer to this is take one step at a time. It is best to evolve your Business Succession Plan over a series of meetings. Case in point. I did a plan with a local bakery and working with with their accountant, we evolved a plan in a little under a year. It’s like the proverbial question, “How do you eat an elephant? One small bite at a time.” You work very hard at your business to make it a success. Consider the same when adopting a Business Succession Plan.