Guardian Disability Insurance Brokerage

Business Reducing Term Disability Insurance
by Thomas Lloyd

A successful business owner within the medical profession may inevitably require the financial assistance of a third party to expand or renovate his or her existing practice. Taking such a vital step in today's rather volatile credit environment will mean you need to meet a number of requirements by the bank in order to qualify for a loan. From the perspective of insurance, the bank will most likely require you to purchase both life and disability insurance coverage on yourself as collateral to that loan. Term life insurance offers the cheapest option but what about disability insurance? Outlined below is a very effective disability insurance product that provides a possible solution.

The disability insurance marketplace provides a form of coverage called business reducing term* which was designed to cover such fixed monthly business obligations. Whether you are a dentist looking to obtain a 5 year, $750,000 loan to cover the purchase of a second practice or an anesthesiologist looking to protect a 7-year guaranteed contract to a key employee - this product will provide that specific amount of coverage each month if the insured suffers a long term total disability. This may sound very similar to another form of disability insurance coverage called business overhead expense. While the two forms of coverage share similar characteristics, they are very different products that work differently in one key way: overhead expense insurance coverage generally has a benefit period of up to 24 months, which may be in adequate when it is used to protect obligations of long duration.

Banks generally prefer to have coverage that provides them with a direct payment from the insurance company, unlike business overhead, which pays the insured who then needs to turn around and pay the bank. On your end, you should benefit with a lower premium as business reducing term coverage is, in most cases, less expensive for the same coverage amounts than business overhead. This is certainly not to diminish the importance of having business overhead expense insurance as a business owner but simply to realize the business reducing term product was constructed to handle fixed monthly payments of a long duration.

As a business owner, business reducing term coverage generally offers some of the best form of coverage to help protect fixed loan obligations. Keep this in mind when constructing a business plan that involves you paying a fixed bank loan or any guaranteed employment agreement. Use business overhead expense coverage to provide replacement protection against your office rent, utilities, employee salaries, and other regular monthly business expenses. Both products serve a very important function and, when used together properly, will ensure proper protection of your business in the event you suffer a long term illness or injury.

*Policy Form AH55-A provided by The Guardian Life Insurance Company of America, New York, NY. Product availability varies by state.