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.

The material is for informational purposes only. Although this strategy may involve tax, legal, and accounting information, we are not offering such advice and suggest you consult your tax professional and advisors. Trusts are drafted by attorneys. Transition costs of converting deferred annuities to SPIA's or taking withdrawals may occur, so this should be examined carefully. The SPIA has been illustrated with First Colony as of 1/05. Rates change on a monthly basis. The life insurance policy assumes Standard NS risk class for both individuals. The carrier illustrated is Pacific Life. This is not a contract or policy, and the carrier's illustration should be attached showing all legal disclaimers. Insurance services provided by Mesirow Insurance Services.