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Disability Coverage for Owners and Key Employees

What would happen if you became ill or injured and could no longer work? What if that condition lasted longer than a month? Would you have to burn through savings? Could you pay your mortgage, buy groceries and be able to continue to live the life you desire?

Group disability coverage is intended to help your employees cover their paycheck in the event of an illness or injury. Allowing them to protect their paycheck. As we have seen with COVID, many employees who didn’t worry about this before, may be worried about it now. Employers can offer coverage of a % of earnings, for Short-Term or Long-Term Disabilities.

Group Disability Plans don’t always cover business owners and key employees’ full income. Pair with Individual Disability Insurance to offer complete coverage.

Protect your most valuable asset: your ability to earn!

Group Plans normally have a maximum benefit. Let’s say you make $120,000 year. A typical Group Long Term Disability plan would cover 60% of your salary up to a maximum benefit of $5,000 per month minus taxes. After taxes and including the shortfall, your actual benefit paid out will be much smaller than your real earnings, especially if you consider additional non W2 income as an owner.

Let’s say you only pay yourself $75,000 in normal wages through salary, and then receive owner draws, or earnings annually. With a group plan you would only get about 22% of your total salary through the Group Plan.

Disability Calculation

Annual Earned Income $75,000

Other Income $45,000

Group % of Coverage 60%

Benefit Amount $3,750

Less Taxes $1,125

Group LTD Paid Out $2,625

IDI Amount $5,605

Catastrophic Coverage $2,645

Total Paid Out $10,875

Percent of Income 91.95%


The IRS will be paid now or later, but they will be paid. Company Gross up on individual is allowed, but it may impact your taxes. If a company pays for the premiums, your benefit will be taxed. To receive a tax-free benefit, you may want to consider paying with after tax earnings. Make sure you consult your tax advisor!

Other Disability Coverage

  • Overhead Expenses - Covers companies’ overhead expenses during owners’ disability so the business can keep operating. Up to $50,000 for 12, 18 or 24-month periods.

  • Key Person - Your company would have an economic loss if this person was unable to work. Replaces lost revenue, replacement costs, training, and salary costs for a key employee. Benefits are paid to the business. Benefit amount is multiples of key person’s salary.

  • Business Loan Protection - Pays loan payments to lender in the event of the disability of owner. Student Loans can now be protected.

  • Retirement Protection - Pays an amount of individual and company contribution into 401k in the event of disability. Keep building your 401k, even if you can’t earn.

  • Disability Buy-Sell Protection – Protects partners from each other’s disability. Pays a lump sum or installment payments to buy out the interest of a disabled business partner.

Not sure that you can afford additional coverage?

Something is better than nothing. Its important to start with the biggest area of concern. If you don’t need to cover up to 91% of your true earnings, pick an amount that you can afford. Most carriers offer a variety of coverage amounts for different situations. You can tailor your coverage to the amount that you need and can afford.

Check out my new disability videos!

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