Most Americans are financially unprepared to endure a health problem that renders them incapable of working. Strangely, surveys on the subject show they actually know they are unprepared. Evidently there is a denial habit at work here intertwined with concerns about the cost of long-term disability (LTD) insurance.

It’s important to keep in mind when approaching the topic that while the probability of becoming disabled is small, the potential loss is extremely large. Self-insurance is not a reasonable option, and yet, most people don’t act in their own interests, or, equally problematic, when they do, they overreact. A 2005 study published by the National Bureau of Economic Research reports that when the typical consumer does confront the potential implications of a disabling condition, he or she is often willing to pay a premium that far exceeds the actual risk. If you share these denial and overreaction habits, here are some helpful facts and options to consider.

The good news for CPAs is that a fairly easy fix can be found close at hand. Relatively inexpensive individual and group LTD policies are available to CPAs and firms that can go a long way toward relieving the financial burden of not being able to earn a living due to a disabling condition.

CPA firms are “preferred risks” for disability carriers, so the rates they pay are among the lowest for any occupation. Costs vary by the age of the insured or the insured population but generally range from one-half to 1.5 percent of covered payroll for replacing from 60 percent to two-thirds of an employee’s salary up to $10,000 a month. When figuring potential replacement income, keep in mind that the benefits of group LTD plans are coordinated with State Disability, Social Security Disability, and Workers Compensation, so that the benefits of the policy represent the difference between the social benefits and the net replacement level guaranteed by the policy.

If you’re a younger CPA, you might want to consider purchasing individual disability coverage that you can keep throughout your professional career. By securing a non-cancellable disability plan with a top-rated insurance carrier while still young, you can “insure your insurability.” Good individual policies contain cost-of-living increases and options to purchase future coverage without further evidence of insurability. Policies cost from one to four percent of gross earnings depending on plan features. Once the policy is issued, rates can’t change unless the policyholder exercises additional options/coverage. Since your professional life is mobile, why not make your essential benefits mobile as well?

If you’re a baby boomer, whether just turning 50 or older, there may be time to revamp your disability insurance plans. You can consider a new group plan or individual plan, or you might want to alter your current coverage to provide tax-free disability benefits by paying premiums with after-tax dollars.

Finally, if you’re managing benefit packages for your firm, some creative planning will allow you to provide a combination of group and individual plans that will maximize your employees’ benefits.

—Doug Hessel is Program Director, CalCPA ProtectPlus Ancillary Products at Hover Insurance Services. You can contact him at dhessel@hoverinsurance.com

Whether offered as an employee benefit through a group plan or purchased as an individual policy to help create a family safety net, long-term disability (LTD) insurance provides income when a policyholder suffers an injury or illness and can’t work. While most of us don’t believe, and can’t imagine, that we will ever need it, the value of such coverage is self-evident. Knowing it’s there certainly provides reassurance to policyholders and their families.

Like most things that seem self-evident, however, real life circumstances are often less than simple. If you’re in a coma, no one would suggest that you should come in to work anyway, but if you’re in pain, who decides if you’re in too much pain to work? Should your insurer take your word for it? Does it serve an insurance company to believe you, and if it disagrees, who is the final arbiter?

On September 9, the California state legislature unanimously passed SB 621 with the intent to take the ultimate decision-making authority for disability claims out of the hands of insurance companies and turn it over to the courts. The legislation is now awaiting the governor’s signature, which is considered almost certain. Originally authored by California’s new insurance commissioner Davey Jones when he was a state assemblyman, the bill continues many years of efforts to do away with “discretionary clauses” by which insurers reserve the right to make the final ruling on the legitimacy of disability claims.

For instance, you claim a back injury and your insurer decides that it is not disabling. At that point you appeal to your carrier. If they deny you again, and a discretionary clause is part of their policy, your options are extremely limited. Few courts would support your right to pursue a claim further.

According to Jones, such clauses “give insurance companies the freedom to easily justify coverage denials when a policyholder takes a carrier to court over denied benefits and claims. This bill levels the playing field for consumers so they can have their day in court and get the benefits they paid for with their premiums.”

While the passage of SB 621 marks a step forward for policyholders, it won’t by itself put an end to discretionary clauses. Group LTD insurance is governed by federal ERISA rules, which specifically allow the inclusion of discretionary clauses in policies. Nevertheless, in practice their use is significantly diminishing, if a carrier wishes to have full discretionary powers, highly specific language will need to be in disability plan’s Summary Plan Description..

During his tenure as Insurance Commissioner, John Garamendi was successful in getting a number of group disability insurance carriers to remove such language from their policies. Also, in recent years courts have asserted the right to review disputed claims and substitute their judgments for that of insurance administrators.

On their part, many insurance companies have recognized the ill-will generated by putting their policyholders in a compromised position and are voluntarily making changes. These changes certainly signal the future direction of LTD insurance. Moreover, because the same or similar practices appear in life insurance and long-term care policies, consumers can expect to see parallel changes in plan design over time.

The CalCPA ProtectPlus group LTD plans with Lincoln Financial do not give the insurance carrier discretionary power to solely determine whether a claim should be paid or not. Instead, Lincoln’s contract provides a process where a claimant can request a review by the California Department of Insurance. For more information on the CalCPA group LTD plans, visit www.cpaprotectplus.com or call Hover Insurance Services, Inc. (800) 805-9480. Groups with 2-9 employees contact Banyan Administrators, LLC (877) 480-7923.

Doug Hessel is Program Director, CalCPA ProtectPlus Ancillary Products at Hover Insurance Services. You can contact him at dhessel@hoverinsurance.com

A popular feature in comprehensive benefits packages, long-term disability insurance provides replacement salaries for employees who suffer from an extended illness or injury. While many employers carry an inexpensive group LTD plan as a matter of course, only some take advantage of an IRS ruling that would allow disabled employees to receive their disability income tax free. This failure can prove costly for employees and represents a lost opportunity for savings by employers as well.

Maximizing Benefits

The IRS ruling in question (Revenue Ruling 2004-55) clarifies the distinction between before-tax and after-tax benefits as it applies to disability income, and it provides a mechanism for distinguishing between them. Simply stated, if an employer pays 100 percent of an employee’s premium, the salary replacement benefits to the employee are taxable. Conversely, if the employer increases an employee’s pay to cover the cost of LTD and then deducts the premium from the employee’s check, the benefits are tax free.

Of course, this change means that the employer and employee incur some extra expenses—an increased salary will mean increased FICA, SDI, and so forth—but these are relatively small expenses. Consider the difference in benefits. An employee who is earning $60,000 a year and is covered by an employer-paid LTD plan offering a two-thirds salary replacement, will receive $3,350 a month if disabled. Assuming he or she has a 16 percent effective tax rate, that net replacement salary is reduced to $2,814. That’s a cost of more than $500 a month as opposed to the few dollars a month that employer and employee would have paid in compensation-based taxes.

Moreover, employers who are looking for savings should note that a less expensive after-tax LTD plan—providing only 60 percent salary replacement rather than the two-thirds given in the example above—would net the employee $3,000 per month, an improvement of almost $200 a month. In other words, by offering the LTD as an after-tax benefit, employers can provide employees with larger benefits with less coverage and pay smaller premiums (as much as 20 percent with some carriers). The cliché of a win-win situation has rarely been so applicable.

Avoiding the Three-Year Look-Back Rule

If your firm is paying LTD premiums in pre-tax dollars and is ready to change, be sure to take advantage of a mechanism provided in IRS Ruling 2004-55 that allows benefits to be tax free from day one.

Ordinarily, the IRS applies a three-year look-back rule that considers benefits taxable in the proportion that they were paid for by before-tax premiums over the last three years. However, the IRS has provided a method that allows employees to qualify for tax-free benefits immediately after the change is made to paying with after-tax dollars. The workaround requires specific amendments to the plan description and a modified enrollment form that allows employees to elect for after-tax payment of the LTD insurance. (See below for information on obtaining sample forms.)

Employees can decide on an individual basis whether they want to have their LTD paid for in pre- or after-tax dollars, so firms can implement the program for employees who want to take advantage of this opportunity without forcing others to make any change in the way they have traditionally received benefits.

Doug Hessel is Program Director, CalCPA ProtectPlus Ancillary Products at Hover Insurance Services. For further information and sample forms email dhessel@hoverinsurance.com

The first of these changes involves a new carrier for group life and long-term disability (LTD) insurance with lower rates and improved service. The second features a broad range of new options for purchasing individual life insurance and LTD policies that will make comparison shopping easier. Both of these changes have been negotiated through the combined efforts of the Group Insurance Trust, CalCPA management, and Hover Insurance Services, Inc. of Santa Rosa. Hover, a new provider to the Trust and CalCPA, will also be responsible for portions of program management. The third and final piece in this series of initiatives is a new money-saving discount program offered through CalCPA’s Affinity and Value Added Benefits Programs.

Group Life and LTD

Effective October 1, the Trust’s group life and LTD plans will move from The Hartford to Lincoln Financial Group. The switchover is automatic for currently enrolled firms. More good news will show up in the form of reduced premiums, which will vary according to firm size. In addition, billing for these policies will change from the current quarterly period to monthly. This means it will be easier to add new hires as they become eligible and to remove terminated employees without having to pay for a full quarter. You can keep your quarterly payment schedule, if you prefer, by simply paying for three months at a time. The credit will be applied to future invoices. If you have other insurance benefits through the Group Insurance Trust, you will have the added convenience of consolidated billing for all of your Trust policies.

In addition to the money savings and convenience offered by the Lincoln Financial group plans, the group life and LTD plans also come with valuable program enhancements. The group life plan features TravelConnect, offering a wide variety of travel-related services, and BeneficiaryConnect, with free grief counseling, memorial planning help, and other relevant services. EmployeeConnect, offered to those in the group LTD plan, is a confidential support program with in-person, phone, or online guidance and counseling.

Firms currently enrolled in the Group Life or Group LTD plans through The Hartford, will receive a letter explaining the change and the new rates and billing procedures. Additional information regarding the new Group Life and LTD plans can be found on the CPAProtectPlus website. However, if you have questions about these or any other benefit plans, do not hesitate to call Banyan Administrators at (877) 480-7923 or email cpaprotectplus@banyan-llc.com.

For firms not currently enrolled, this is a great time to consider these benefit plans because Lincoln Financial is offering an extended rate guarantee that locks in rates through September 2014.

Individual Life and Disability

A new personal insurance program, available through MiQuotes, provides all members of CalCPA with easy online access to competing quotes for term life, return of premium term life, and permanent life policies. The same site also provides access to quotes for disability income insurance. The program is available only to members of CalCPA and you must login to your member account to access the MiQuotes website for CalCPA members.  You can also read more about these new benefits on the CPAProtectPlus.com website.

Once on the MiQuotes site you can get instant life insurance quotes from several competing companies and choose the policy that works best for you. The site also contains an online quote form for disability insurance with variables for salary amount, length of coverage, and waiting period. After you have submitted the form, a specialist will contact you to discuss the coverage. The agent may have more questions or simply want to go over the quote with you. Be assured that the agent calling is not there to make a sale but to help you navigate the details and help you get the most competitive policy for your circumstances.

Individuals who are currently insured through the ING affinity life program will be unaffected. They may, however, find it worthwhile to explore the options available at MiQuotes.

New CalCPA Discount Plans

While on the MiQuotes website, take a moment to check out two discount programs that are available to all CalCPA members. A discount pharmacy card, free for the asking, is available that can be used at WalMart, CVS, and Walgreens among many others. There is also a program with small application and monthly fees giving discounts on a wide variety of products and services including pet care, hearing aids, legal services, and more than 2,000 golf courses.

As a solo practitioner, you’re in great company. When it comes to healthcare, being a solo practitioner doesn’t mean going it alone.

With ProtectPlus, you can take advantage of the comprehensive coverage and competitive rates of a group plan. We make it simple for solo practitioners to get superior healthcare with the ease of one-stop shopping for plans that include medical, dental, vision, disability and life insurance.

With ProtectPlus, your one-person firm can get exclusive programs and coverage ordinarily available only to large firms, with group plans that include the best doctors, hospitals and administrators available. Additionally, our staff is responsive and delivers personalized service you won’t get anywhere else. Since we offer programs only to CalCPA member firms, we understand the unique needs of your business. Our plans are specifically designed for CPAs, by CPAs, so you’ll find the perfect program that fits you.

Best of all, you won’t waste valuable, billable hours shopping for the best coverage or managing a lot of administrative details. So you can stay focused on your core business, ProtectPlus provides back office services that include:

• Help with completing forms
• Answering questions about plan benefits
• Facilitating claims resolution

When it comes to healthcare, we take care of our own. Get comprehensive coverage from the people that understand the needs of solo practitioners. Get an instant, no-obligation quote now. Solo practitioners are subject to underwriting and may be denied coverage based on health history.