Producer Use Only. Not for Use With the Public.

Sales and DI Risk Management…

Partners in success!

C: 66742

Producer Use Only. Not for Use With the Public.

Financial Underwriting

Why do we need to do this? What information do we need? Is it “gross” or net? What about unearned income? Types of Entities:

EmployeeSole ProprietorPartnershipsS Corp/ C Corp/ PC

Producer Use Only. Not for Use With the Public.

Why have a greater understanding of Financial Underwriting?

So that you can target appropriate candidates for D.I. and adequately insure them.

Understanding insurable income and earned income is essential when writing a disability income contract. We only insure earned income.

We must consider corporate income/losses when issuing coverage.

Business income or loss will be included at both underwriting and claim time (in the event of a claim under the Extended Partial Disability Benefits Rider).

Producer Use Only. Not for Use With the Public.

Business Entities

Entity determines necessary financials: Employee/Non-Owner -- W-2 Sole Proprietor -- Schedule C Corp. Shareholder -- Form 1120, pages 1&2 and W2 S-Corp Shareholder -- Form 1120S, pg 1; K-1;W-2 OR

1040 pg 1&2; Schedule E; W-2 Partner -- K-1 OR

Form 1040, pgs 1&2; Schedule E

Producer Use Only. Not for Use With the Public.

Tax Disclosure

The information on the next two slides is being provided with the understanding that it is not intended to be interpreted as specific legal or tax advice. Neither MassMutual nor any of its employees or representatives are authorized to give legal or tax advice. Individuals are advised to seek the guidance of their own personal legal or tax counsel.

Producer Use Only. Not for Use With the Public.

Taxable vs. Non-Taxable

When an employee is a non-owner OR an employee/shareholder of

a regular corporation (1120), we need to determine who will be

paying the premiums:

Insured pays the premium Non-taxable/employee paid

Business pays the premium Taxable/employer paid Insured pays the premium Taxable/employer paid

under a sec 125 plan w/ pre-tax dollars Business pays the premium AND Non-Taxable/employee

paid includes it on employee’s W-2

Producer Use Only. Not for Use With the Public.

Taxable vs. Non-Taxable When insured is operating as a Sole Prop. (Sch.C), S-Corp

Shareholder (1120S) or Partner in a Partnership (1065), premiums are ALWAYS considered employee-paid.

Accordingly, benefits are ALWAYS non-taxable (both group LTD and individual)

Limited liability companies (LLC’s) can be organized as a corporation or partnership (sometimes referred to as a LLP) - and are most often organized as a partnership. Accordingly, if the producer advises that the business is a LLC we must take it one step further and inquire whether they are filing as a corporation (Form 1120) or partnership (Form 1065). If the LLC is filing as a partnership, all partners will have non-taxable group and individual coverage

Producer Use Only. Not for Use With the Public.

Unearned Income

Unearned income includes; interest, dividends, rental income, passive partnership & S-Corp interests, capital gains/losses.

Unearned income exceeding 15% of Total Earned Income, will offset the monthly benefit amount .

Unearned income will be disregarded unless it exceeds 15% of the Total Earned Income, except-

Military and other pension distributions are dollar for dollar offset (Taxable benefits may be discounted)

Producer Use Only. Not for Use With the Public.

Net Worth

Will be disregarded unless exceeds $3,000,000 Will require breakdown of assets-liquid vs. non-

liquid. Depending on amount of net worth, may need to

reduce coverage and indemnity applied.

Producer Use Only. Not for Use With the Public.

The Art of Averaging

Guide is 2 years, but u/w may request 3rd. Decreasing earned income is not averaged. Income that should be averaged includes:

Business Owner income increasing by 15% Commissioned employee earnings Bonuses Unearned income

Producer Use Only. Not for Use With the Public.

The END!!

MassMutual Financial Group is a marketing designation (or fleet name) for Massachusetts Mutual Life Insurance Company and its affiliates, Springfield, MA 01111-

0111

Producer Use Only. Not for Use With the Public.

Questions??

Producer Use Only. Not for Use With the Public.Massachusetts Mutual Life Insurance Company and affiliates, Springfield, MA 01111-0001 • www.massmutual.com