Severance Agreements usually result in the promise of the employer to provide for a continuation of income and benefits for a certain period of time beyond the termination date of an employee. These types of agreements are very common. Employers having tried their hardest to attract the best talent possible have fabricated very expensive benefit plans. But when the company has a downturn or a change of control through a merger or acquisition, such Severance Agreements are used to cushion the bad news of termination and to prevent costly litigation of promises made at hiring time.

An employer who is trying to do the right thing by continuing income and benefits for a period of time in hopes that the severed employee has the opportunity to seek out a new place of employment, unknowingly often burdens his/her firm with significant liabilities. The primary liability we see so often is the promise to continue disability insurance beyond the termination date of the employee. Why is the promise for disability insurance such a liability?

Unlike the medical insurance and life insurance which typically is portable, the inquiry to the group LTD carrier brings the bad news that they cannot continue covering a terminated employee. The HR Department calls their local insurance agent and advises him/her that they need to secure an individual disability policy on this terminated employee. The insurance agent sadly advises that his carrier will not consider insuring an unemployed person for disability insurance.

O.K., Great, what the heck do we do now? If the former employee suffers a disability during the severance period the firm will be self insuring this risk. This could be a cost running into millions of dollars. OR the astute insurance agent may know that there is a solution. He/she knows that Petersen International Underwriters offers an individual plan of disability insurance to cover this sort of risk. The insurance professional is the hero!

Intent of the Plan

The intent of the Severance Disability Insurance Plan is to relieve the Employer of this obligatory benefit to the former employee during the period of severance. Usually severance periods are limited in time, but during that time period major liabilities can be incurred by the employer. As an example a terminated employee age 45 that would be eligible for a disability benefit of $10,000 per month until age 65 would create a potential liability of $2,400,000 for the employer. The Petersen International Underwriters’ Severance Disability Insurance Plan can relieve 100% of this liability.

Potential for this Plan

In 2007 the financial news carried article after article regarding layoffs in all sectors of business. 2008 unfortunately is looking at more of the same as the economy slows down. By approaching the HR Department of these firms, you will be able to bring attention to yourself as the person with a solution. We have helped many producers solve these types of problems to be told later that it has in turn brought them many other opportunities with these firms. You too can be a hero and make a nice commission while doing so.