February 6, 2009, Newsletter Issue #46: Tax Considerations of Own Occupation Disability Insurance Premiums and Benefits

Tip of the Week

You face a variety of income tax considerations with own occupation disability insurance as you would with all forms of this coverage. First, you should ask, “What does own occupation mean?” Own occupation coverage stipulates that, after suffering an injury or illness that qualifies as a covered disability, you are normally eligible to continue receiving benefits until you are able to resume the duties of your specialty.

If you have purchased disability insurance with an own occupation rider with your personal funds as an individual policy, your premiums are often tax deductible and your monthly income benefits are generally tax free. Conversely, if you are covered by a group disability policy or have coverage owned by and/or paid for by a business entity, your monthly disability income benefits are often subject to standard income taxes.

As with most income tax issues, there are few absolutes. For instance, is the “business entity” paying your own occupation disability insurance premium your own unincorporated company, all income and expenses of which included in your personal tax return? Are premiums paid by a limited liability company (LLC) of which you are the “member manager” and sole member? There are other potential tax questions that may need answers beyond the simple explanations of tax consequences noted above.

The best advice, as always, is that you consult your tax professional, preferably before you make your decisions about own occupation disability insurance. After learning of your options as they affect your income taxes, you’ll have the information you need to make the best decision for you.

The above-listed tip is for informational use only. Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.

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