At Fortify Insurance Group we have deep experience in providing executive benefit and carve out plans. A well-designed income plan provides incentives to retain key employees and protects you against the unthinkable. We specialize in providing the following:
- High-limit disability for high earners
- Group disability with high coverage for multiple participants
- Business overhead expense (BOE)
- Key person insurance
- Disability buyout or buy/sell (DBO)
Business Overhead Expense Policy (BOE)
A BOE policy provides benefits for small to medium-sized businesses to cover overhead expenses and keep the business viable during a period of disability for the business owner. It is designed for those business owners whose personal service is key to the continued success of the business, usually in relatively small to medium-sized companies. This is a reimbursement policy that offers 30-, 60- and 90-day elimination periods and 12-, 18- and 24-month benefit periods.
The advantage of this type of policy is that it ensures that a business can remain open and maintain goodwill with customers, vendors, and creditors until such time as the owner can return. In the event the owner cannot return, the policy can help to mitigate depreciation of the business’ value for the purpose of a sale.
Key Person Policy
This policy protects small to medium-sized businesses from the loss of critical employees in the event of total disability. A critical or “key” person need not be one of the business owners. For example, a key person might be an employee who is responsible for management decisions or has specialized skills or experience that would be difficult to replace in the event of a disability. Or a key person may have a significant impact on sales or a special rapport with customers or creditors.
The advantage of this policy is that it can help demonstrate financial stability in the face of a catastrophic loss. The benefits are generally tax-free and paid out after 180 days. The funds can be used at the company’s discretion.
Disability Buyout or Buy/Sell Policy (DBO)
If the owner of a business becomes disabled or dies, it is often necessary for the business to be transferred to new ownership. A buy-sell agreement ensures the orderly transfer of a business interest in the event of an owner’s death or disability. Most business owners establish a buy-sell agreement, but many either fail to fund it or only fund it for the event of their death.
The objective of a DBO insurance policy is to provide a funding mechanism for a buy-sell agreement in the event of a disability. A DBO product ensures proper funding for reimbursement of money paid for the purchase of an owner’s interest in a business in the event of a long-term disability. It also provides the non-disabled owner(s) with reimbursement for buyout expenses (e.g. legal expenses).
These policies can be issued on an entity basis or on a cross-insured basis (two owners insure each other). We often recommend a combination of Key Person and Buy/Sell in order to maximize the financial stability of a company and give the owners ample time to set up the next steps in case the disability is going to be a long-term event. Premiums are not tax-deductible, and the benefit dollars are received tax-free but there could be a capital gains tax.