Life Insurance | Disability Insurance | Health Insurance
Self-Employed, Entreprenuer and Small Business Guide to Life Insurance, Disability Insurance and Health Insurance
If you had an unlimited budget, you could easily spend a small fortune on the various insurance products available for small business owners. We recommend starting with the vital insurance products, and as a risk increases or the budget allows, you can expand from there. The basic insurance coverage’s to discuss with your insurance agent are health insurance, life insurance and disability insurance. The following will provide some brief overviews on each insurance type.
Life insurance is a key component of protecting not only your household but also your business. There are two types of life insurance for a self-employed or small business owner to consider as a component of your continuation planning:
Personal life insurance provides benefits to family beneficiaries that:
· Help your family make payments to the home mortgage ensuring they are able to stay in the home
· Replace lost income
· Provide a home care / childcare fund
· Pay outstanding credit debts
· Establish or contribute to a college education fund
Executive / Key Person Life Insurance Executive / Key Person Life Insurance provide benefits to the business that: · Ensure the business the business can continue
· Replace lost sales revenue in the event of the loss of a key partner /sales executive
· Can fund or at least offset costs for the search for a replacement executive
· Can act as buy-sell funding by covering the cost of any necessary share repurchase (i.e., provide money to purchase the deceased partners stock shares from his or her estate)
You need to protect your personal income, and you need to make sure that you will have a business to come back to after any period of long term disability. If you are a contract employee, then individual disability insurance is all you need. If you are your business, then an individual disability insurance policy and a professional overhead expense disability insurance policy should both be explored. Individual Disability Insurance Disability insurance makes sure that there is always an income stream coming in regardless of whether or not you are able to work. This is vital to ensure that you can pay your household’s bills in the case of an extended work absence due to a medical event Professional Overhead Expense Disability Insurance Professional overhead expense insurance helps you make sure the business’s bills are paid in the event you are unable to work at the place of business. A professional overhead expense policy will reimburse you for deductible overhead expenses paid during a period of long-term disability at the office. The premiums you pay for this type of insurance are tax-deductible. It makes sure there is still a viable business to come back to after you recover from a period of disability. There are two types of health insurance for an entrepreneur / small business owner to consider when seeking to obtain health coverage for themselves and/or employees: Individual health insurance covers and individual and the immediate family (i.e., spouse, children) of the applicant. This insurance is generally affordable and there are no federal regulations that tie this health insurance to a company, it is obtained solely on an individual case-by-case basis. Pros: 1. Can be more affordable than group health
2. Each person / family can customize and select their own plan
3. The company is not obligated to pay any portion of the premium
4. Plans are portable – if the employee leaves the company, the plan goes with them with no interruption in coverage or change in pricing.
Cons: 1. Can be skimpy on certain benefits, such as maternity coverage
2. Often is purchased at a deductible level of $2,000 or greater to be affordable
3. Individuals with chronic health conditions (i.e., diabetes or uncontrolled high blood pressure) can be declined for coverage by the insurance carrier
Group health insurance can be obtained by a Georgia-based company that meets the following conditions: 1 – has a federal tax id number 2 – has two or more employees who work full-time and exclusively for the company 3 – the Georgia-based company pays a minimum of 50% of each employee’s monthly premium Pros: 1. The company is paying a minimum of 50% of the premium (for Georgia-based companies)
2. Premium from the company and from the employee can be withdrawn pre-tax, therefore lowering payroll taxes for the company and income taxes for the employee
3. Richer plan benefit structures can be obtained
4. Individuals with chronic health conditions cannot be denied coverage
Cons: 1. Depending on group size and demographics, it has the potential to be significantly more expensive than an individual health plan
2. The employees have to chose from the plan(s) offered by the employer, there is no options for further benefit customization by each individual employee
3. Plans are not portable – if the employee leaves the company, the group health plan converts to a COBRA-eligible plan, which if elected, is now significantly higher in cost as the employer is no longer obligated to pay any portion of the monthly premium and the coverage is in-force for limited time period, after which it must be replaced by another group health plan or an individual health plan
When shopping for insurance, it is key to work closely with an agent who can guide you through the many plan options out there. While there are many more components to health insurance coverage options, there are a couple pitfalls you will want to be aware of prior to beginning your search to prepare you on how to best work with your agent in defining your needs: With hundred’s of plans being available from health insurance carriers, it is easy for a new business owner to fall in to an all-familiar trap – “Let’s minimize distraction and just go with whatever plan looks like what I had at my last corporate job.” Why can this be a misstep? A couple of reasons: 1 – Your last corporate position most likely was in a company with a larger number of employees (insight: the greater the number of employees, the more the risk and cost is diversified – i.e., a plan of equal benefits will not cost the same per an employee for a company of 3 employees as it does for a company of 100 employees). As well, your previous employer may have had the same plan in place for a couple years, and with regulatory and tax-exemption changes, your previous plan structure may not be maximizing the current savings opportunities in today’s marketplace. When beginning to shop for health insurance plans, the very first question you should ask yourself and those on the executive review team within your organization is this: What are the top three plan benefits you (and your family) utilized last year? Were prescription copays utilized on a regular (i.e. monthly) basis? Were having copays for doctor visits important to you? How often did you pay fees that counted towards your plan deductible and approximately how much did you spend last year? Why is this important? It provides perspective and insight as to what benefits you / your family or people in your company may rely on versus benefits that have been previously purchased, yet were not actually being utilized. If your annualized cost to have a plan with a rich prescription card benefit far outweighed the number of times you filled pharmaceuticals last year, you may find that you might want to move to a less expensive (i.e., lower benefit) prescription plan. After all, the insurance company will not send you a refund check at the end of the year for benefits you did not utilize or underutilized. So work with your agent to examine carefully if you can reduce your monthly fixed costs (i.e. your monthly insurance premium) by identifying and changing underutilized plan benefits. Pitfall # 3 – Trying to Be a Health Insurance Expert Yourself, Rather than Finding One Many entrepreneurs / small business owners are so accustomed to wearing many different hats during the start-up of the business, so they often feel a great deal of pressure to “become an expert” when selecting health insurance plans for the organization. That being said, utilizing and developing a strong relationship with an insurance broker is key to ensuring you obtain the right benefits package. Insurance brokers understand the in’s and out’s of the benefits offered by various carriers, have insight on tax-savings plans you may not have heard of before, and understand the fine art of providing cohesive information during the underwriting process of your health insurance plan to ensure you receive the most favorable final monthly premium rate. You never have to pay an insurance broker for their services and they have the ability to negotiate on your behalf with the insurance carriers to obtain the best possible pricing for your coverage. Work with an insurance broker who will act as a consultant in tailoring your insurance plan specific to your needs and educate you throughout the process. Know that the market and pricing of health products will change and it is important to work with an agent to re-evaluate your coverage structures and pricing at regular intervals to ensure you / your company has the most appropriate coverage and pricing for the current market conditions. DISABILITY INSURANCE
HEALTH INSURANCE
Individual Health Insurance
Group Health Insurance
Getting Prepared to Evaluate Medical Insurance Options
Pitfall # 1 – Designing a Plan to Match What your Past Employer Offered
Pitfall # 2 – Not Discussing Actual Benefit Utilization Before Shopping Health Plans
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