You have to spend money to make money, and if you don’t have enough money to spend, you might have to borrow money. Many business owners take out bank loans. If those business owners then experience an illness or injury that prevents them from working, they might not be able to pay back those loans. Bank loan disability insurance provides important protection against this risk, so it’s important to offer this option along with other disability insurance products.
Bank Loans and Business Debt
The 2021 Small Business Credit Survey from the Federal Reserve shows that many small businesses experience financial difficulties, and that the situation has gotten worse since the start of the pandemic. In 2020:
- 80% of small business experienced financial challenges, up from 66% in 2019.
- Among businesses reporting financial difficulties, 50% took out debt.
- 79% of small businesses had outstanding debt, up from 71% in 2019.
- 44% of small businesses had more than $100,000 in debt, up from 31% in 2021.
- 44% of businesses had trouble making payments on debt.
Many businesses that had to suspend operations during the pandemic have been able to reopen. However, the extra debt that they took on remains. These small business owners are counting on the fact that they will be able to keep working and pay off their loans. Unfortunately, for some business owners, a disability may make this impossible.
How Disability Can Disrupt Small Businesses
Let’s look at a couple of hypothetical examples to see how an injury or illness could disrupt a small business.
- Brandy owns a med spa. During the pandemic, she sees a significant decrease in business, but she still has rent and other operating costs, so she takes out a bank loan to stay afloat. When restrictions end, business volume returns, and she’s confident that she’ll be able to repay her loans. Then she’s diagnosed with cancer. Treatment is exhausting, and she has to travel out of town to see specialists. She needs money for her treatment, but she’s not able to work enough, and she still has those bank loan payments. She’s not sure how she’ll manage.
- Peter owns an electrical contracting business. Business is great, and he wants to jump on an opportunity to expand. He doesn’t have enough cash, but he’s confident that it’s a smart investment, so he takes out a loan. Then he has a heart attack. He’s sunk a lot of money into the expansion, but due to his poor health, he can’t keep up with the work needed to make the expansion a success.
These are hypothetical examples, but real people go through similar experiences. The Social Security Administration says that one in four people will experience disability before reaching retirement age, and the Council for Disability Awareness says that 15% of long-term disability claims are caused by cancer and 8.2% are caused by heart attacks or strokes.
Bank Loan Disability Insurance
Small business owners take on a lot of financial responsibility. If they’re unable to work, their businesses can go under, and any employees who work there may lose their jobs. In the meantime, they may still have bank loans to repay.
Bank loan disability insurance provides protection. If the policyholder becomes disabled, the benefit will pay the monthly loan obligation.
Combining Bank Loan DI with Other Products
Bank loan disability insurance can help business owners pay their loans so they don’t fall further into debt. When business owners are dealing with a disability, this can be a tremendous help. However, it’s probably not the only help that business owners will need.
Because the business owner may not be able to earn an income during a period of disability, individual disability insurance is important. Business owners may also be interested in business overhead expense insurance, disability buy-sell insurance and key person disability insurance.
Talk to Your Clients
If your clients own a business, there’s a good chance they’ve taken out a bank loan to fund their business. Ask them how they plan to pay off their loan if a disability prevents them from working. Then talk to them about bank loan disability insurance and how it can be combined with other disability insurance products to protect both the business owner and the business.
Do you want to know more about bank loan disability insurance? The business loan disability insurance product sheet has the information you need, including key product highlights. Download your copy now.