ELITE ADVISOR BEST PRACTICES
NFL Coach Being Treated for Leukemia
The importance of high-limit and key-person disability insurance
By Ted Tefaro
- Your high-income clients may be highly exposed on two fronts if they become disabled: loss of their own incomes and negative impact on their businesses’ success.
- High-limit disability insurance can protect high-performing professionals above and beyond what traditional disability income carriers will underwrite.
- Key-person disability insurance provides benefits to protect a company or organization from financial hardship that may result from the loss of a key employee due to disability.
At age 52, Chuck Pagano, head coach of the National Football League’s Indianapolis Colts, is being treated for a form of leukemia. Like all highly successful executives, attorneys, surgeons and businesspeople, Chuck has spent his lifetime learning and consistently fine-tuning his craft.
As Lloyd’s of London Coverholders, we highlight Chuck’s diagnosis with the intent to draw parallels to additional verticals where equivalent risk exists, using concepts that can be applied directly to your client base.
Two exposures exist when a highly successful individual becomes disabled:
- Exposure to the individual’s income and ability to maintain his or her lifestyle
- Exposure to the business, corporation or franchise that employs the individual
Consider your most successful clients—whether you are working with a coach, a hedge fund manager, a highly compensated attorney, a private equity professional or an entrepreneur, a considerable exposure exists for those earning more than $1,000,000 annually. In Chuck’s case, it would not be unreasonable to consider a $10 million high-limit disability insurance policy to protect his future earnings.
As many advisors know, high-limit disability insurance is designed to keep an HNW individual’s disability benefits at 60 percent of income regardless of income level. Coverage is typically issued supplemental to standard coverage. When turning to an insurance professional to help you get high-limit disability insurance, make sure your clients are getting the best policy terms and definitions and appropriate design features.
Key-Person Disability Insurance
While the NFL maintains confidentiality around a coach’s contract details, the financial impact to the Colts is likely to be considerable, regardless of whether Chuck can return to the season. In this instance, key-person disability insurance can be purchased and owned by the team to mitigate the financial risk of losing a highly paid coach.
For a team in the highly competitive NFL, losing a head coach is comparable to the loss of a world-renowned surgeon who drives a hospital’s revenue, the loss of the visionary CEO of a closely held business, the loss of the chief technology officer of a software company or the loss of a hedge fund manager responsible for performance.
As a trusted advisor, it is your responsibility to recommend key-person disability insurance as a solution to the potential risk of unforeseen disability. Think of your very best clients. Who is exposed?
Key-person disability insurance provides benefits to protect a company or organization from financial hardship that may result from the loss of a key employee due to disability. The company can use the benefits to hire a temporary employee should the disabled employee’s disability appear to be short term. In the case of permanent disability, benefits are used to help defray costs related to hiring a replacement, including recruitment, training, startup, loss in revenue and unfunded salary continuation costs.
When seeking high-limit or key-person disability insurance for your elite clients, make sure your insurance is designed to meet the needs of your client—both in the event of a short-term disability and in the event of a catastrophic disability.
Although the numbers may appear intimidating, high-income coverage isn’t all that hard to obtain. As a matter of fact, the process is pretty straightforward. But it is a specialized coverage that not all traditional insurance advisors can initiate, so you need to find an advisor who works in that particular field.