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Article 13 of 15 in Sample Disability Insurance Policy and Provisions Review |
Disability insurance business earnings rider |
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The following Business Earnings Rider is one of the optional benefits that can be added to the sample disability income policy.
BUSINESS EARNINGS RIDER
This rider is part of the policy. It is issued in consideration of the application and payment of the premiums for the policy to which it is attached. All definitions, provisions and exceptions of the policy apply to this rider unless changed by this rider. Its issue date is the same as the Policy Date unless another date is shown on the Data Page.
The policy to which this rider is attached is amended by changing the Earnings definition as follows:
EARNINGS:
Income you earn for labor or services performed. This includes salary, wages and fees.
If you are self employed or a shareholder performing labor or services for any business, Earnings means:
- Your share of the earned income;
LESS
- Your share of normal and customary business expenses which do not exceed expenses before disability began and which are deductible for Federal Income Tax purposes;
PLUS
- Any salary and any contributions to a tax qualified pension, profit sharing or deferred compensation plan made on your behalf.
Earnings include, but are not limited to, salary, wages, fees, commission, dividends, bonuses, undistributed net income or addition to retained earnings.
EARNINGS DO NOT INCLUDE:
- Capital gains whether from short or long term investment;
- Income from deferred compensation plans;
- Income not derived from your vocational activities.
We will allow either the cash or accrual accounting method, whichever you are using immediately prior to the Disability. However, we will not consider any change in accounting method during a Disability. |
COMMENT:
This Rider can be added to the policy at no expense because its cost already is included in the policy premium. This rider changes the definition of “Earnings” to make it more compatible for a business situation where the insured is a business owner, the principal party in a business or shares in the earnings of the company.
Though the definition seems similar, some aspects have been changed to place greater emphasis on business-owner or partner income. For example, a typical definition of earnings includes your share of earned income when you are a shareholder performing labor or services for a business, but this is not included in the policy’s definition of earnings. That definition also includes things such as dividends, bonuses, shares of undistributed net income, and additions to retained earnings. None of these are included in the policy definition of earnings. Too, the Rider definition expressly excludes long and short term capital gains, income from deferred compensation plans, and income derived from vocational activities.
The Rider also makes clear that the insurance company will allow either the cash or the accrual accounting method, whichever you use immediately prior to disability, but the company will not accept a change in accounting method during a period of disability. |
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