BOE Vs. Key Man DI?

[Full Throttle]

Key man disability: I have two DI cases open right now, still trying to get a feel for this product and where it fits. Both cases are similar, the owner has group STD/LTD (that I wrote) up to a $6,000 max monthly benefit. Both owners with profits down the last three years, don't have enough income to do a DI wrap and are only taking out W-2 income right now. Both agree that if they got laid up for 12 months, their business would be take a financial hit.

BOE would be an obvious option, but if I were laid up, the idea of receiving a lump sum like a key man DI policy would be appealing. Most BOE policies don't go past 12 months (or 24 months) anyways. Anyone ever put much thought into this? Opinions?

 

[arnguy]

Post this query on disabilityinsuranceforum.com for some in depth professional advice.

 

[Larry Tew]

Post this query on disabilityinsuranceforum.com for some in depth professional advice.

That site appears to be closed.
- - - - - - - - - - - - - - - - - -
BOE is the obvious choice. I don't believe the business owner can do Key Man DI on himself.

 

[VolAgent]

Not that I am a DI expert by any stretch, but it seems like you are looking at two products that serve completely different roles. Also, I was always under the impression that lump sum DI was rather expensive, while BOE is fairly cheap.

I remember one wholesaler telling me that the buy/sell DI was so expensive and underwritten so tightly, he basically just told people to go without. I would assume a lump sum key man policy would be treated similarly.

 

[scagnt83]

Key man disability: I have two DI cases open right now, still trying to get a feel for this product and where it fits. Both cases are similar, the owner has group STD/LTD (that I wrote) up to a $6,000 max monthly benefit. Both owners with profits down the last three years, don't have enough income to do a DI wrap and are only taking out W-2 income right now. Both agree that if they got laid up for 12 months, their business would be take a financial hit.

BOE would be an obvious option, but if I were laid up, the idea of receiving a lump sum like a key man DI policy would be appealing. Most BOE policies don't go past 12 months (or 24 months) anyways. Anyone ever put much thought into this? Opinions?

They both could be viable options.
Part of it will depend on the need (total amount of benefit needed) and part of it will be the owners personal preference.

It sounds like this is a business protection move, as opposed to a personal protection move.


With that being said; there is no reason that a business protection move can not provide personal income protection for an owner or key employee.


I am a big fan of both KMDI & BOE.


The main difference between the two is how benefits are calculated and paid out.

KMDI benefits are based on a multiple of the individuals salary, usually only 2x or 3x gross salary is the max.
So in that aspect you can be limited on how much benefits you receive.


BOE benefits are based on the actual expenses that the business occurs on a regular basis.
This includes: Rent/Mortgage, Utilities, Recurring professional fees (lawyers, accounting, collections, billing, cleaning, etc), business paid insurance premiums, and even salaries of Key Employees.

So as im sure you can imagine, BOE has the potential to provide a much larger benefit in general.
However, it is limited to the insureds ownership percentage. So if the total expenses where 10K/month and you had a 50% owner as an insured, then their max benefit available (pending underwriting) would only be 5K.

The nice thing about it is that you are free and clear to use the money however you want, you are not required to use it for the actual expenses listed.

But it pays out on a monthly basis similar to a traditional DI policy. The company has to provide proof of the incurred expenses for each month, and then they are reimbursed up to the maximum benefit amount.

(Of course with KMDI, you are free and clear to use the lump sum however you want within the business as well)



Definition of disability will vary from company to company.
But usually it is "not able to perform job duties as per a doctors recommendation", most that I have placed are not ADL based.

I know that Principles Lump Sum KMDI is the former, and Petersons BOE is as well.
So its really nice having the more relaxed definition of disability.



KMDI is a bit more cut and dry, but for some businesses it just will not cover the needed expenses.


Also, there is nothing that says that you cant have both, just split the benefit amounts between the two....

Or, you could shop full benefit amounts and compare quotes.
I have found that BOE can be a bit less expensive sometimes for lower benefit amounts.


One good thing about LSKMDI; if you are disabled and get past the elim period, then you are guaranteed to get the full benefit amount.
That is not the case with BOE; you could only be disabled for 3 months and only receive a portion of what you would have with LSKMDI.


So it really comes down to what the exact need is, and how they would like to receive benefits.

Underwriting will be pretty much the same for both, they will both be based on the risk of the insureds job.

Hope this helps.
- - - - - - - - - - - - - - - - - -

Not that I am a DI expert by any stretch, but it seems like you are looking at two products that serve completely different roles. Also, I was always under the impression that lump sum DI was rather expensive, while BOE is fairly cheap.

I remember one wholesaler telling me that the buy/sell DI was so expensive and underwritten so tightly, he basically just told people to go without. I would assume a lump sum key man policy would be treated similarly.

Not exactly.
They serve similar roles imo...

LSKMDI is not really that expensive imo.

I ran a quote the other week on a 45yo female (white collar office job) for $300K, if I remember right it came back around $150-$200/month.


I dont know what wholesaler you spoke to, but Principles LSDI (which is often used in buy/sell situations) is the same as any DI during the underwriting process. (at least in my experiences)
- - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - -
BOE is the obvious choice. I don't believe the business owner can do Key Man DI on himself.

Come to think of it I think you might be right.

Since the purpose of KMDI is to cover lost business expenses due to the loss of that employee.... BOE serves the same purpose for an owner.

I think I remember hearing once that Principle wouldnt do the LSDI on owners... I will have to check on that..

 

[arnguy]

That site appears to be closed.
- - - - - - - - - - - - - - - - - -
BOE is the obvious choice. I don't believe the business owner can do Key Man DI on himself.

Oops, my bad. It is disabilityinsuranceforums.com I left the "s" off of forums. Sorry.

 

[LGilmore]

I think the BOE might both be an easier sell and more importantly "placement".

I would imagine at this point in time, lump sum DI underwriting is going to be very tight. You have a business that has been on a downward spiral for 3 years and they have a chance to purchase a lump sum "get out of jail" policy? If I get disabled, I can get a lump sum and walk. Think like an underwriter on this one. I guarantee you that's what an underwriter is thinking.

I love DI, but it is the hardest product to place if the plan is any good. It's been that way from day one in the business for me.

In this market, IMHO you have a better chance with the BOE and then a regular DI policy with a long waiting period.

 

[Full Throttle]

That's what I am going to recommend. I just learned about Key Man DI fairly recently (didn't know it was an option except for buy-sell funding) and wanted to make sure I recommend what will best serve my client. Typing it out and getting others opinions often times gets me thinking about angles I haven't considered before and allows me to present it with more conviction.

 

[Mark]

I'm still learning the Key Man market. I think there is some good money in it for the agent that learns it.