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:
Employee
Sole Proprietor
Partnerships
S 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
 Business pays the premium
 Insured pays the premium
under a sec 125 plan w/ pre-tax dollars
 Business pays the premium AND
paid includes it on employee’s W-2
Non-taxable/employee paid
Taxable/employer paid
Taxable/employer paid
Non-Taxable/employee
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. nonliquid.
 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 011110111
Producer Use Only. Not for Use With the Public.
Questions??
Producer Use Only. Not for Use With the Public.
Producer
Only. Not
Use With• the
Public.
Massachusetts Mutual Life Insurance Company and
affiliates,Use
Springfield,
MA for
01111-0001
www.massmutual.com