PRACTICE MANAGEMENT
Disability Coverage
John F . Nichols MSM , CLU
Loan Protection
There are more than 21 million small business loans valued at more than $ 600 billion . Business loans are taken out for business-related expenses , such as :
• Purchase or expansion of a practice or business
• Purchase of a large piece of equipment
• Facility renovations
• An increase in working capital or build-up of inventory
• Purchase of a building or land for a business
It may make sense to provide disability insurance to cover the business loans in the event the business owner has a disabling accident or illness . There are separate insurance policies or riders to a traditional policy that provides benefits to cover the loan or loan payment obligations .
Impaired Risk
Perhaps a client will not qualify for traditional or even non-traditional coverage because of an extensive medical history . Impaired risk coverages can work for pre-existing medical conditions .
Diversity of Opportunity : QSPP Can Prevent Dysfunction and Disruption
• Could you continue to pay a disabled employee ’ s salary from your business ?
• How long could you afford to pay a salary ?
• Would the payments you pay be deductible to your business ?
It is the American dream : turn a simple idea into a start-up and , through innovation , hard work and the right people , grow that start-up into an industry leader . It may seem obvious that a business owner would want to do everything to protect the people who help grow the business . As the business grows , however , offering everyone the same protection in the case of injury or illness may become difficult . Owners have a tendency to focus on partners , executive staff and key employees . This is a completely logical line of thinking , but without a Qualified Sick Pay Plan ( QSPP ) in place , it could put the business at high risk .
A QSPP is a formalized plan determining who will be paid , how much will be paid and how long salary will be continued when employees are unable to work because of an injury or illness . The plan can have different determinations for different classes of employees within the company . It can also be self-funded , or funded through an insured product , such as disability income policies .
Why a QSPP ?
There are two key reasons : tax implication of benefits paid and potential precedent . The Internal Revenue Code states that wages paid to a disabled employee may not be deductible as a business expense unless they are paid under a salary continuation program . Without a program in place , any payments made are not deductible by the business and are fully taxable to the employee .
The implementation of a plan allows a business to deduct wages paid to employees who cannot work , and an employee can receive qualified benefits tax-free . The absence of a QSPP could result in the IRS disallowing benefits paid to an employee as sick pay . This would have serious tax implications on the employer and the employee .
An even greater danger to an employer is the existence of benefit payment precedent . It may seem completely logical to continue the salary of key employees responsible for revenue growth , but , without a QSPP , any sick pay for any employee creates a precedent of the same pay for all employees . Any variation between employees could be viewed as discrimination . To eliminate this risk , it is important to create a formal , written plan stating any differences of salary continuation length or frequency between classes of employees before an employee needs to use it .
65 TODAY ’ S PRACTICE : CHANGING THE BUSINESS OF MEDICINE