CASE STUDY: Insuring Director Compensation
Current Situation:
Many senior executives and business owners sit on corporate boards once they have retired or sold their businesses. Board director compensation can represent large dollars to these individuals. Crain's Chicago Business published an article in February, 2006, confirming that as board responsibility has increased, so has director compensation.
Possible Problem
What if an individual, earning over $500,000 in director income, became disabled and could no longer serve on the board?
Solution – Disability Insurance
One way to protect director income in the event of disability is to secure specialized disability insurance.
How it Works:
Specialized disability insurance is a disability policy that insures the individual for one year and then must be renewed. Target prospects for this coverage are individuals whose age is 56 or older. This is a product offered by specialty carriers such as Lloyds of London. The policy typically pays a lump sum benefit if the insured suffers a total disability and is unable to serve as a board director or engage in any activity that generates income.
| CASE STUDY EXAMPLE—MRS. LOWEDEN | |
| Mr. Rodder is age 66 and serves on three boards. He earns $400,000 in director income. He would like to continue his board service until he is age 70. The director agreement for each company indicates that if he were to become disabled and unable to serve on the board, each company would continue to pay him his director compensation for 90 days once disability occurs. When the 90 days has expired, the director compensation ceases. The following is what we were able to provide for Mr. Rodder: | |
| Carrier: | Highly Rated Specialty Markets Disability Carrier |
| Coverage Amount: | $1,000,000 Lump Sum Benefit |
| Premium: | $20,000 for Year 1 |
| Policy Renewal: | Annually |
| Disability Definition: | Total Disability |
Summary:
Mr. Rodder is happy to pay a premium to give him peace of mind that in the event of disability, he will receive a lump sum benefit of $1,000,000. No policy will insure 100% of the income lost, but depending upon the situation, specialty disability can replace a good portion of lost compensation.
This material is for informational purposes only. Although this strategy may involve tax, legal, and accounting information, we do not offer such advice and suggest you consult your tax professional and advisors. Rates provided in the case study above are for illustrative purposes only and are subject to change. The carrier illustrated is a highly rated specialty insurance carrier and additional legal disclosures would be provided by such carrier. This is not a contract or policy. Insurance brokerage services provided by Mesirow Insurance Services, Inc.
