Severance Disability Plans II
SILVER LININGS IN THE DARK CLOUDS OF DISEMPLOYEMENT
SEVERANCE DISABILTIY PLANS
A Newsletter From Petersen International Underwriters
- Relieves Employers of Substantial Obligations
- Makes a hero out of the astute broker
SEVERANCE AGREEMENTS – present a new opportunity for Insurance Advisors and Producers. Merger and acquisition of businesses is a common occurrence. When two businesses are enjoined, a group of executives and employees are typically dismissed. After all, the theory of the enjoinment is to run two businesses with one overhead and one set of personnel.
Those who are terminated are, due to strict new employment laws, provided a contract called a Severance Agreement. This agreement promises a continuation of salary for a period of time, usually six months to two years, and a continuation of company paid benefits.
When the severed employee walks out the door, the group plan terminates!
The FORMER EMPLOYEE is no longer covered by Workers’ Compensation, State Disability Coverage, (only 5 States have such programs; NY, NJ, RI, CA & HI), Group Disability, and Group Life Insurance Plans. The group medical coverage also ceases, but under the COBRA laws and regulations, medical coverage is immediately available. The severing company is obligated to provide facsimile benefits, if they can be found. If such benefits cannot be found, the surviving firm finds itself in the insurance business for it is obligated to continue benefits to the extent of the benefits provided for employees. This is where “Severance Insurance” is needed, especially for Life and LTD coverage.
Our form, “Severance Agreement Statement”, provides the road map for concerned Human Resources people and business owners to arrange the necessary and the promised benefits for severed employees.
This is goodwill coverage and business development coverage. The business firm will feel a sense of relief in finding substitute benefits and likely will recognize the unique help of the broker in securing these coverages. It opens an exposure to an appreciative client.
We designed a Severance Disability Plan because we could not find any carrier that was willing to provide disability insurance for an unemployed person. We do not know of any other plans that may have been developed since then (1993). Severance Disability is frequently requested and has proven to be an excellent business development tool.
Regardless of little or no competition for the severance disability plan, we have improved it. It provides excellent benefits and it is not rated up because of the Insured Person being unemployed.
INTENT OF PLAN
The intent of the plan is to relieve the Employer for obligatory payments to the former employee should he/she become disabled after leaving the firm. This obligation for the Employer is usually limited to one or two years only, but in some few cases a longer period of time is included in the Severance Agreement.
The liability of providing disability payments to age 65, like the Group LTD Plan, as an example, $10,000 per month for 240 months (age 45 to 65) is $2,400,000. The Severance Disability Plan provides funding for this contingent liability.
- Severance Disability is a serious problem for the Employer and a glaring obligation that must be disclosed in the financial statements as a contingent liability. In the disclosure the employer will want to include that adequate insurance is in force to cover this contingent liability. The former employer having been nicely served by a creative broker will be open to other suggestions from the broker.
- Severance Disability creates an appreciative friend out of the former employee who will reciprocate a favor by recommending the producer to his/her new employer.
An exclusive product for target risks like Severance Disability Insurance presents a unique sales opportunity. It often leads to other risk solution opportunities.
The Headline in the Los Angeles Times Tells the Story:
“19,000 Getty Oil Employees Terminated by purchasers, TEXACO”.