How to Insure Your Income: Disability Reducing Term Insurance

It's common for a business to incur a loan or other financial obligation that requires monthly payments. In some cases, the monthly payment can be made only as long as the owner remains able to run the business.

To protect the financial obligation -- and the assets that could be lost in case of default -- the business can purchase a disability reducing term policy, which provides a monthly benefit to cover loan obligations in the case of total disability.

The business purchases and owns the policy, the owner is the insured person, and the business is the beneficiary of the monthly benefit. Premiums are not tax-deductible to the business, but benefits are received tax-free.

The phrase reducing term refers to the fact that the full monthly benefit is payable only for the remaining term of indebtedness or obligation.