The Need to Protect Your Income

1. Disability Income Planningfor Business OwnersAre You and Your Business Prepared to Survive if You Never Receive Another Paycheck? The information contained in this presentation is being provided with the understanding that it is not intended to be interpreted as specific legal or tax advice. Individuals are encouraged to seek the guidance of their own personal legal or tax counsel.

2. The Need to Protect Your Income As a business owner, you understand the need to protect yourself against major risks, such as fire, theft, natural disasters, legal liabilities, medical cost, etc. Yet you may be self-insuring one of your most important assets- your income.

3. What Would Disability Mean to You? Think about this for a minute. How much income will you earn over the next several years? $375,000? $500,000? More? How would you replace this income should you become disabled? Who would run your business? How would your overhead be paid – rent, electricity, employee wages, etc. Could your business pay you, too, until you recover?

4. Most People Don’t Like to Think About Disability. But Here’s Why You Should. • 73% of people believe they would be adversely affected financially if they were unable to work for a year or longer (Source:Survey by the Consumer Federation of America (CFA) and the American Council of Life Insurers (ACLI), April 23, 2001.) • During the course of your career, you are 3.5 times more likely to be injured and need disability coverage than you are to die and need life insurance (Source: Health Insurance Association of America, 2001.) • Do you know anyone who has suffered from back or musculoskeletal problems, cancer, heart or circulatory problems, injury, depression, or long-term illness? These could all be causes of disability.

5. What Constitutes a Disability? • Disability income insurance policies define exactly what constitutes a total and partial disability that will trigger payments. There can be substantial differences in how disability is defined, so it is very important to read the definition in the policy carefully. • Long Term Disability Claims most often occur from*: • 21% - Musculoskeletal • 13% - Cancer • 11% - Circulatory Problems • 10% - Injury or Poisoning *Source: JHA 2000 U.S. Group Disability Rate Study & Risk Management Survey.

6. Disability Income Insurance Pays a regular income to an insured person who becomes totally disabled and unable to work. The amount the disability income insurance policy pays is never as much as the person could be earning at work. Instead, each payment represents a percentage of the insured person’s regular income. Business Overhead Expense Protection Reimburses the owner for covered overhead expenses up to a specified limit on a monthly basis during a disability. This policy can help assure the company employees that, in the event of the owner’s disability, the business will continue to operate and their jobs will be secure. Types of Disability Income Insurance Important for a Business Owner:

7. Which of My Business Expenses Would Be Covered By a Business Overhead Expense Policy? • The following is a list of business expenses which are covered by most disability income insurance policies intended to help cover business overhead expenses: • Employee salaries • Employee fringe benefits and payroll taxes • Rent • Utilities • Telephone and telephone answering service • Interest and principal on business indebtedness • Association dues • Accounting, billing, and collecting fees • Premiums for business insurance • Postage and stationary • Laundry, maintenance, and janitorial service

8. Which of My Business Expenses Would Not Be Covered By a Business Overhead Expense Policy? • Business expenses that are generally not covered under a business overhead expense policy include: • Salary, fees, draw account, or other remuneration for the owner (individual disability income insurance is designed to cover the owner’s personal income needs) • Depreciation of furniture and equipment • Merchandise and cost of goods sold • The cost of these items are generally not covered expenses since they are contributing to the asset base of the company and are really investments rather than expenses

9. Policy Features - The Waiting Period • Before any benefits are paid, the insured generally must be disabled beyond a certain waiting period. During this period, the insurance company pays no benefits. If the disability continues at the end of this period, disability income insurance payments begin. • Insurers offer a range of waiting periods. The most common are 30, 60, 90, and 120 days. • The shorter the waiting period, the more the policy will cost since the insurance company will become obligated sooner rather than later.

10. Policy Features – The Benefit Period • The benefit period is the period during which the insured receives disability income or business overhead expense payments • Several options are available • The longer the benefit period, the more costly the policy

11. Taxation of Disability Income Insurance • If an insured purchases a policy and pays the premiums, the premium payments are not tax-deductible for the individual. However, any benefits paid when the insured is disabled will be received federal income tax free. • In an employer pays premiums on a disability income policy available under a qualifying plan, the premiums are tax-deductible by the employer. The insured, however, must pay federal income taxes on any benefits received. • When the employer and employee share in the premium payments, the portion of any benefits paid for by the employee are received income tax-free, but the portion paid for by the employer must be reported as income in the year the employee receives benefits. The employer’s contribution is excluded from the employee’s taxable income, and the employer’s contributions are tax-deductible by the employer.

12. Taxation of Business Overhead Expense Insurance • Under a disability income insurance policy intended to help cover business overhead expenses, the business owns the policy, pays the premiums, and receives the benefits when the owner is disabled. • The premiums for this insurance are tax-deductible as an ordinary and necessary business expense • If the owner becomes disabled, the benefits received are considered income to the business and are, therefore, includible in the gross income of the business • The company or owner can, however, deduct the corresponding business expenses, thus offsetting the policy benefits with expenses. The information contained in this presentation is being provided with the understanding that it is not intended to be interpreted as specific legal or tax advice. Individuals are encouraged to seek the guidance of their own personal legal or tax counsel.

13. The Help You Need For Planning Disability Income Insurance isn’t just about dollars and cents. It’s about people. You, your loved ones, and your employees. These people count on you. So why take unnecessary risks? You have worked too hard making your business a success to take a chance on not being financially covered should be become disabled. For More Information, Please Contact: Ricke & Associates 425 Bank Street New Albany, IN 47150 Phone: (812) 944-4461, 1-888-537-4253 Fax: (812) 945-1328 www.ricke.com