Questions and Answers
We answer the most common questions about Disability Buy Sell insurance, Key Person Protector insurance, and Business Overhead Expense insurance
Questions about Disability Buy Sell insurance
Questions about Key Person Protector insurance
Questions about Business Overhead Expense insurance
Questions about Disability Buy Sell insurance
Q. What kind of business should have Disability Buy Sell insurance?
A. Disability Buy Sell insurance is designed primarily for partnerships and professional corporations comprised of two to five principals. Consideration may also be given to corporations and partnerships with six to ten principals. The Disability Buy Sell policy is most effectively used with partnerships and closely held corporations that employ less than 50 people, have up to $10 million in annual sales and are in stable industries.
Businesses most likely to need this kind of coverage include:
- Accounting firms
- Advertising agencies
- Architectural firms
- Employment agencies
- Engineering firms
- High-tech and computer firms
- Law practices
- Medical practices and clinics
- Osteopathic practices
- Small manufacturers
Q. Who owns the policy?
A. The owner of the policy may either be the corporation or partnership (entity purchase), or alternatively each owner can own a policy on each of the other owners (cross purchase). The entity purchase may be preferred when there are more than two owners involved as a means of reducing the number of issued policies. The existence of a formal disability buy-sell agreement is very important, as it governs the terms of the buy-out. The agreement is not required at time of issue but will be required at time of claim. Applicants applying for Disability Buy Sell coverage should have some Individual Income Protection coverage in force or should be in the process of applying for such coverage with RBC Insurance®.
The owners of the business should also be covered by Buy Sell Life insurance to protect the business from an insured owner's death.
Q. How long can a Disability Buy Sell policy be renewed?
A. The Disability Buy Sell policy offers coverage until the earlier of:
- The insured partner reaches the specified age stated in the contract; or
- The date the insured partner terminates active full-time employment with the business entity for any reason other than total disability; or
- The date the aggregate benefit limit is paid; or
- The date one person owns a specified portion of the business entity as stated in the contract.
Q. How are policy benefits paid out?
A. Two pay out options are available at time of purchase:
Level monthly installments
Level monthly installments provide the security of knowing that a consistent benefit flow is available to fund a buy-out.
This economical pay out option provides for benefits to be paid in 60 equal non-interest-bearing installments. Payments will cease in the event of the death of the disabled insured partner. However, if the amount payable is less than the maximum business purchase amount, we will refund the amount by which the premium paid during the last 12 months exceeds the premium which would have been payable for the business purchase amount during that time.
Flexible funding
Flexible funding means that there is a choice of receiving one lump sum amount, a series of installments or a partial lump sum followed by a series of installments.
Questions about Key Person Protector insurance
Q. What is Key Person Protector insurance?
A. Key Person Protector insurance has been developed to provide coverage for a financial loss to an employer due to the disability of a key person.
Q. What kind of employee would be a key person?
A. A key person is an employee whose services are of such a nature that the owner would suffer substantial financial loss due to the employee's Total Disability.
These employees offer their employer knowledge, skills or talent that few others can imitate or duplicate. The industry they work in or the nature of their work may be so specialized that there are few others with the skills needed.
Many of these occupations have a component of design or research to them. Typically, the unique skills possessed by a key person are not totally acquired through education or even experience but are attributable in part to their own creativity, talents and interests.
Q. How long does Key Person Protector insurance provide protection?
A. The Key Person Protector insurance plan offers coverage until the earlier of:
- The insured partner reaches the specified age stated in the contract; or
- The date the insured ends active full-time employment for any reason other than total disability; or
- The date the maximum benefit period has been met for any one period of total disability; or
- The date benefits become payable under the replacement expense benefit provision.
Q. What is the definition of Total Disability?
A. The Key Person Protector insurance plan defines Total Disability as follows:
Total Disability means that because of Injury or Sickness the Insured:
- Is under the regular and personal care of a Physician; and
- Is unable to perform the important duties of his or her regular occupation.
Questions about Business Overhead Expense insurance
Q. What is Business Overhead Expense insurance?
A. The Business Overhead Expense policy is designed for principals of closely held businesses or practices and owners of small businesses. It is an expense reimbursement policy that covers those fixed monthly business overhead expenses required to keep the business viable until the return of the owner, after a period of disability. This allows the business operations to continue until the insured either returns to work or makes a decision regarding the future of the business.
Q. What type of business owner should have Business Overhead Expense insurance?
A. It is most vital with businesses and practices in which the owner's ability to come to work makes the difference between the office being open or closed for business. The coverage will appeal to physicians, lawyers, accountants, engineers and other individuals who own firms that depend on the owner's ability to generate income to pay the bills.
All of these features, plus the fact that premiums may be tax-deductible as a business expense, make the Business Overhead Expense insurance a key component of any business owner's financial security plan. It ensures that business continues when a disability occurs.
Q. How long will the policy be in effect?
A. The Business Overhead Expense policy is non-cancellable and guaranteed continuable until age 65. After age 65, the policy is conditionally renewable while the insured is employed full-time (minimum of 30 hours per week) and responsible for the expenses of maintaining an office or business. Rates and benefit periods are subject to change after age 65. The insured may continue the policy for the total disability benefit up to age 75. After age 75, the insured's total disability benefit will be reduced by 50%.
Q. Are there any exclusions to the coverage benefits?
A. Benefits will not be paid for disability if:
- An act or accident of war, whether declared or undeclared;
- Normal pregnancy or childbirth, but we will cover disabling complications of either of these.
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