Disability Insurance for Business Owners

Business owners plan for many possible challenges, such as lawsuits, supply chain interruptions and natural disasters. Unfortunately, they don’t always remember to plan for illnesses and injuries. Disabilities are more common than many people assume. When they impact business owners, both personal and business finances can suffer. That’s why disability insurance is a critical part of risk management and financial planning for business owners.

Disability Forces Business Owners to Take Time Off

In small and midsize businesses, the owner often plays a hands-on role. In fact, ongoing operations often depend on the hard work of the business owner. However, when a disability strikes, working hard may not be an option.

According to the Council for Disability Awareness, the most common causes of long-term disability insurance claims are back injuries, cancer, and heart disease. Even previously healthy business owners can be forced to take time off due to these disabilities. Consider the following statistics:

• The Social Security Administration says one in four of today’s 20-year-olds will become disabled before turning 67.
• The National Cancer Institute says approximately 2 million people are diagnosed with cancer each year in the U.S. The average age of a cancer diagnosis is 66, which means many new cancer cases are in people aged 65 and under.
• The World Health Organization says 1.71 billion people worldwide have musculoskeletal conditions. Low back pain is the leading cause of disability in 160 countries.   
• The CDC says 805,000 people in the U.S. have a heart attack each year and one in 20 adults aged 20 and above has coronary artery disease.

Could Your Business Survive 34.6 Months Without You?

The Council for Disability Awareness says the average long-term disability insurance claim lasts 34.6 months – that’s nearly three years. Business owners should consider how a disability lasting three years would impact their business.

You may want to power through when you’re dealing with an illness or injury, but that’s not always feasible. In fact, trying to do so could be disastrous for your recovery.

For example, if you are diagnosed with cancer, you may need to take time off while you undergo treatment. According to the American Cancer Society, some people are able to work during cancer treatments, but this depends on the type of treatment, stage of cancer, overall health, and kind of work. People who do continue working may still need to take time off from work or switch to a less demanding schedule, which can be hard for business owners.

• If you can’t work, you’ll need to hire someone (or possibly a couple of people, depending on how much you do) to cover for you. That will cut into your budget.
• Even though you won’t be bringing in income, you’ll need to pay many of your business overhead costs, such as employee salaries, rent, and property taxes. If you can’t cover these costs, you may have to close your business.
• Many business owners pay themselves a salary by drawing funds from their business. If you aren’t bringing in revenue, you may not have funds to pay yourself anything. If that happens, how will you cover your personal expenses, such as your rent or mortgage, utilities, and groceries? Keep in mind that you may also have substantial out-of-pocket medical costs. All these costs can quickly drain your savings.

How Disability Insurance Can Help Business Owners

Disability insurance can provide funds during periods of disability. Some employees receive job-based group benefits through work, but business owners need to secure their own coverage.

There are a two main types of disability insurance for business owners:

• Individual disability insurance replaces a portion of the policyholder’s income during periods of disability. Business owners can buy individual disability insurance coverage to provide themselves with income if they can’t work due to an illness or injury.
• Business overhead expense insurance covers eligible business overhead expenses during a period of disability. It typically covers rent, utilities, employee salaries, property insurance, and certain other common business expenses for a benefit period of up to one or sometimes two years. However, business overhead expense insurance does NOT cover the business owner’s salary – business owners should secure individual disability insurance for that protection.

In addition to the coverages above, some business owners also purchase key person disability insurance and buy-sell disability insurance.

• Key person disability insurance provides coverage for the business if a key person is unable to work due to a disabling condition.
• Buy-sell disability insurance is primarily used as part of a business continuity plan to ensure a smooth transition if an owner needs to sell the business because of a disability.

Business owners frequently secure property and liability insurance to protect against natural disasters and lawsuits; they should also consider disability insurance to protect against illnesses and injuries.

Heffernan Insurance Brokers can help you secure disability insurance to protect your business and your personal finances. Learn more.