Stock Option Specific Disability Insurance

What are Stock Options?

A stock option gives the investor the right, but not the obligation, to buy a certain amount of shares in the company at a predetermined price. An employee stock option is slightly different from a regular exchange-traded option because it is not generally traded on an exchange, and there is no "Put" component. Furthermore, employees typically must wait a specified vesting period before being allowed to exercise the option. 

Stock options are usually awarded to executives at various times and are often awarded on an annual basis. At the time the stock options are awarded they are not yet in the possession of the employee, they first need to be executed or purchased. Once they have been executed they are normally restricted for a period of time before they mature.

Within publicly traded companies, many top executives are compensated by way of a number of different sources. The most common sources will include salary, bonus, and stock options. Many individuals are paid a modest salary, bonuses tend to vary, and stock options can be as much as 80% of total compensation package. This holds true with the majority of America’s top companies.

Stock Option Disability Insurance

What happens to an executive who has a career ending disability? Disability insurance benefits will begin after the elimination period (time deductible in days before benefits start), but their annual stock options will no longer be awarded to them. With executive compensation packages heavily weighted toward stock options, their disability insurance portfolio will have a massive shortfall.

Unique compensation issues require unique solutions.

The Stock Option Disability Insurance plan is a long-term, own-occupation, career-ending disability insurance product designed for executives of publicly traded companies.  The "Own-Occupation" feature of a disability policy will continue to pay its benefit if you can go back to work, but in a different occupation.  Benefits are paid on a lump sum basis of up to five times the last three years annual average stock option awards. Malleo Financial Services can offer this unique type of disability insurance through a Lloyd's of London carrier.  Contact us for more information.

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*This blog is strictly the opinion of Michael A. Malleo and not those of