Replacing Workman's Compensation With Disability Insurance

The DI Doctor · 04-17-2009, 03:16 PM

[COLOR=black]With skyrocketing costs for workman’s compensation coverage, there can be an opportunity to use disability insurance as the solution![/COLOR]

[COLOR=black]Certain states, like California, will allow workman’s compensation to be substituted with disability insurance. If you have a client who is a business owner, this can save him a TON of money and earn you business in the process![/COLOR]

[COLOR=black]The key to making this work is the business owner would make his key employees 1% business owners. So if he had 10 key employees he would reduce his ownership to 90% and give them each 1%. [/COLOR]

[COLOR=black]Now you have helped your business owner kill two birds with one stone. Instead of worrying about income protection and workman’s compensation, both needs have been handled as you help him design his salary continuation plan for his company! Besides that, when you are doing this for more than 3 lives you can add the extra advantage of discounted premiums as well![/COLOR]

[COLOR=black]Please let me know if you have any questions.[/COLOR]

insuranceexec · 04-17-2009, 05:11 PM

Interesting idea. I am curious; so please humor me.

What are the steps that are involved in allowing a "business" to be sold off, or to be given away?

Is there a minimum percentage that has to be given to qualify for something like this?

The DI Doctor · 04-17-2009, 06:01 PM

Chris,

I can not reply to private messages yet as I am under 30 posts. You have a great question so I will post it here with my reply.

The DI Doctor

[COLOR=black][COLOR=black]__________________________________________[/COLOR][/COLOR]
[COLOR=black][/COLOR]
[COLOR=black][COLOR=black]Do you know if you can do this in [/COLOR][/COLOR]
[COLOR=black][COLOR=black]SC?[/COLOR][/COLOR]
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[COLOR=black][COLOR=black]Thanks for the idea!!!!![/COLOR][/COLOR]
[COLOR=black][COLOR=black]- Chris[/COLOR][/COLOR]
[COLOR=black][COLOR=black]__________________________________________[/COLOR][/COLOR]
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[COLOR=black][COLOR=black]You can. I checked your state work comp comm site:[/COLOR][/COLOR]
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[COLOR=black][COLOR=#800080]http://www.wcc.state.sc.us/Welcome+and+Overview/faqs/#employer_self[/COLOR][/COLOR]
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[COLOR=black][COLOR=black]Can sole proprietors or partners elect to be covered under workers' compensation?[/COLOR][/COLOR][COLOR=black][/COLOR]
[COLOR=black][/COLOR]
[COLOR=black][COLOR=black]Can an employer self-insure for workers' compensation?[/COLOR][/COLOR][COLOR=black][/COLOR]
[COLOR=black][/COLOR]
[COLOR=black][COLOR=black]The answers I have read confirm that you can have your business owner make his key employees 1% owners, and then work comp is no longer mandatory. Then they can self insure, using disability insurance as a solution.[/COLOR][/COLOR]
[COLOR=black][/COLOR]
[COLOR=black][COLOR=black](This should appear in work comp commission sites in similar wording for other states that offer the same provisions as California or South Carolina.)[/COLOR][/COLOR]
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GreenSky · 04-17-2009, 06:05 PM

I have a client who did this about 3 years ago. He didn't buy disability insurance but pays 100% for the HSA plan and funds 50% of the deductible.

Rick

The DI Doctor · 04-17-2009, 06:05 PM

I will give you a call to discuss. Take care!

arnguy · 04-17-2009, 08:29 PM

Certainly sounds like a novel approach; however, I don't think that it is permissible in PA.

somarco · 04-17-2009, 08:31 PM

So you have carriers willing to write long tail DI biz on a 24 hour basis?

Interesting.

moonlightandmargaritas · 04-17-2009, 08:32 PM

I don't have too many clients that would give up 10% of their equity to save on worker's comp...

insuranceexec · 04-17-2009, 09:42 PM

Originally Posted by moonlightandmargaritas

I don't have too many clients that would give up 10% of their equity to save on worker's comp...

I agree; which is why I asked my question.

djs · 04-18-2009, 12:00 AM

This is nothing new. A lot of states don't require the owner to be covered under workers comp. If they are, you can pull them off workers comp, and if you chose, put them on DI.

Problem is, DI isn't really a workers comp replacement. If you are out for 2 weeks, the DI coverage won't even kick in. If you have large medical bills, health insurance may exclude coverage since workers comp should apply.

While the income coverage of DI sounds good, you have to check to see if they have health coverage that will cover work related injuries.

Also, is DI any cheaper than workers comp? I doubt it, but I've never tried to compare the 2 before.

Dan

P.S. I'm a big believer in DI coverage. I have it myself, but I'd have to check to see if I'd be willing to arbitrarily recommend replacing workers comp with it.

somarco · 04-18-2009, 07:37 AM

Problem is, DI isn't really a workers comp replacement. If you are out for 2 weeks, the DI coverage won't even kick in. If you have large medical bills, health insurance may exclude coverage since workers comp should apply.

Other issues as well.

Most DI is non-occ, not 24 hour. Try finding 24 hour coverage on blue collar with benefits to age 65 (or whatever the WC cutoff age is for benefits).

The medical is less of an issue, depending on the size of the group.

You also have the accidental death issue. Most AD&D is also non-occ. You can find 24 hour AD&D on some group plans.

Replacing WC liability (life, disability, medical) is not as easy as it sounds when doing a hodge-podge, cobbled group of policies. There are gaps that cannot be covered by a non-WC policy.

SoCalBroker · 04-18-2009, 09:51 AM

Kinda hard to get a WORK COMP certificate of insurance from a DI carrier?

Rates in CA havent been this LOW in 10 years. They are trending up NOW - by about 24% - even thought theyve been down about 60+ %

Just came across a small franchisee - 2 yrs old - had a wc rate from a program with Zurich - 2% of payroll ... a $2 rate!!! in a restaurant ...

Interesting Idea - not too practical for a great many businesses.

The DI Doctor · 04-21-2009, 11:15 AM

Somarco,

Long tail? I am unfamiliar with that term in relation to insurance, please elabrate. Thanks.

The DI Doctor

somarco · 04-21-2009, 11:23 AM

Long tail is a reinsurance term. It refers to claims that can continue long after the policy has terminated, as well as those that go beyond the normal policy limits.

I would be hard pressed to come up with a DI plan covering blue collar workers on a 24 hour basis with benefits that extend to age 65. Perhaps you can enlighten me.

moonlightandmargaritas · 04-21-2009, 11:23 AM

You're the "DI Doctor" and you're not familiar with the term "long tail"?

Hmm...maybe time to go back to med school for a refresher.

It refers to a product that can have a longer range claims liability. DI and LTC would be two examples...

The DI Doctor · 04-21-2009, 11:32 AM

Originally Posted by moonlightandmargaritas

I don't have too many clients that would give up 10% of their equity to save on worker's comp...

10% was simply the number in my example. Just remember it has to be a minimum of one percent given to every employee that is to be made an owner. How much % the owner gives up would depend on how many employees he wants to make 1% owners.
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Originally Posted by moonlightandmargaritas

You're the "DI Doctor" and you're not familiar with the term "long tail"?

Hmm...maybe time to go back to med school for a refresher.

It refers to a product that can have a longer range claims liability. DI and LTC would be two examples...

Long Term... Thank you for your clarification.

It is not uncommon for people in different areas to use different terminology. That was the first time in nearly 10 years I have heard the term long tail in relation to anything other than hunting.

I have seen others get confused when they are looking for gaurunteed insurance options, and not realize that another carrier simply calls the same feature future purchase. Easy to happen. Thanks for your help.
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Originally Posted by somarco

Long tail is a reinsurance term. It refers to claims that can continue long after the policy has terminated, as well as those that go beyond the normal policy limits.

I would be hard pressed to come up with a DI plan covering blue collar workers on a 24 hour basis with benefits that extend to age 65. Perhaps you can enlighten me.

What state in particular? Difficult in California unless you have a blue collar worker who is also a business owner. There are more options outside of CA to make this work without being a business owner. Let me know. Thanks.

somarco · 04-21-2009, 11:43 AM

I don't know of any products in any state that offer such coverage to blue collar workers. I was hoping you could enlighten me since you are the DI doctor and I am not.

The DI Doctor · 04-21-2009, 12:02 PM

Originally Posted by djs

This is nothing new. A lot of states don't require the owner to be covered under workers comp. If they are, you can pull them off workers comp, and if you chose, put them on DI.

Problem is, DI isn't really a workers comp replacement. If you are out for 2 weeks, the DI coverage won't even kick in. If you have large medical bills, health insurance may exclude coverage since workers comp should apply.

While the income coverage of DI sounds good, you have to check to see if they have health coverage that will cover work related injuries.

Also, is DI any cheaper than workers comp? I doubt it, but I've never tried to compare the 2 before.

Dan

P.S. I'm a big believer in DI coverage. I have it myself, but I'd have to check to see if I'd be willing to arbitrarily recommend replacing workers comp with it.

Disability Insurance is 24 hour coverage to cover the inability to earn income due to accident or illness. The only carrier that can wrap off the job coverage only is Lloyds of London. (Ran into that a few years ago with a group of border patrol guys whose supervisor got rammed outside the dept parking lot.)

DI is not work comp, and its good to clarify that. However if we are talking about some key employees who can go 60 or 90 days without a benefit, it may be a good fit. If there are key employees who can't or won't wait that long, its not impossible to dovetail a short term group seamlessly followed by a long term individual plan starting at 60 or 90 days.

It is always great to double check cost comparisons of options, like weighing work comp options against disability. However, if its possible to meet the coverage needs with one product for even some employees then why pay for two if you have a situation where its not mandatory? Just some thoughts.

I know I answered several with this one reply, hopfully its pretty clear.

There are ALWAYS possibilities! Take care!!

moonlightandmargaritas · 04-21-2009, 12:07 PM

One thing you haven't taken into account: in many states, worker's comp coverage is finite liability for the business owner.

If someone has waived (and is/isn't covered by a private DI policy) there's no end to the business owner's liability.

djs · 04-21-2009, 12:28 PM

Originally Posted by moonlightandmargaritas

If someone has waived (and is/isn't covered by a private DI policy) there's no end to the business owner's liability.

I still don't see how a DI policy covers the same risk. Let's take a scenerio, one we hope doesn't happen...

A worker leans over a railing, falls, breaks his back. Permanently paralyzed.

What does DI cover? A portion of his income for the period of the insurance.

What does workers comp cover? The medical bills, the rehab bills, income, etc.

The DI policy will fall far short, at least the way I see it. Am I wrong?

Yes, minor stuff, no big deal, perhaps. Broken leg.... workers comp would have benefits, not out long enough for DI to kick in. Cut a finger off? Same thing, workers comp would have benefits, not out long enough for DI. Have a back injury, but not catastrophic, out 6 months? Okay, not much workers comp needed, DI might work.

Give me an example where a work injury has better benefits under DI than under workers comp.

I'm a believer in DI, I just feel this is bad positioning, leaving a huge exposure to the business owner.

Dan