Two small business owners secure individual disability insurance. Both have made the smart decision to protect their incomes against the risk of disability. Both end up experiencing a disability that requires them to stop working, and both file a claim. However, that’s where their tales diverge.
Due to differences in underwriting, one business owner has substantially more robust coverage than the other. As a result, one business owner has the financial resources and peace of mind he needs for a smooth recovery, while the other doesn’t.
Unfortunately, the latter is common. Many people overlook the nuances in the disability insurance options available to business owners, and the impact on coverage can be significant.
Two Business Owners
Brad owns a gym. He’s forty-five years old and in good health, but he knows that disability can strike anyone, so he decides to buy individual disability insurance.
Steve also owns a gym. He’s also forty-five years old and in good health, and like Brad, he understands the importance of disability insurance and decides to buy coverage.
Brad and Steve both rely on the expertise of an insurance agent to secure coverage. However, the coverage they receive is not the same. Brad’s insurance agent secures coverage for him with a carrier that underwrites him as a blue-collar worker. Meanwhile, Steve’s insurance agent places his coverage with a carrier that underwrites him as a white-collar worker. Neither Steve nor Brad pay much attention to the classification at the time, but when they both have claims, the differences become noticeable.
Blue-Collar vs. White-Collar Disability Insurance
When it comes to disability insurance underwriting, job classification makes a difference. One frequently overlooked issue is whether an occupation is classified as blue collar or white collar.
- Blue collar jobs typically involve manual labor.
- White collar jobs are typically associated with office work.
Disability insurance underwriters care about this because blue-collar jobs typically involve a higher risk of injury compared to white-collar jobs. Due to the elevated risk, the coverage terms that disability insurance companies offer often aren’t as robust.
| Blue Collar | White Collar | |
| Benefit Period | Limited – maybe only two to five years | Flexible – could last until retirement age |
| Definition of Disability | Any-occupation is more common | Own-occupation is possible |
| Mental Illness | May not be covered | More likely to be covered |
| Additional Benefits | Fewer options | More options for Business Overhead Expense insurance, Business Loan protection, etc. |
Is a Business Owner a Blue-Collar or White-Collar Worker?
Although the blue-collar vs. white-collar division is common, not all jobs fit neatly into one category. Business owners are a prime example.
- A business owner might do a lot of the day-to-day hands-on work involved in making a business successful. For example, as gym owners, Brad and Steve might teach classes, provide one-on-one fitness training and even handle maintenance issues as they arise. As such, they could be classified as blue-collar workers.
- On the other hand, a business owner might focus on administrative and management tasks. For example, as gym owners, Brad and Steve might handle scheduling, social media advertising, and payroll tasks. As such, they could be classified as white-collar workers.
So a business owner could be considered a white-collar worker or a blue-collar worker. Often, carriers classify business owners as blue-collar workers, and many agents accept this without question. However, this can put business owners at a disadvantage is they ever experience a disability.
The Impact of Business Owner Classification on Disability Claims
Both Brad and Steve experience health problems that require them to take time off work.
- Because Brad’s carrier classifies him as a blue-collar worker, his benefit period only covers two years. After that, he needs to go back to work or figure out another source of income. Although he’s glad he has some coverage is place, when the two years are up, he’s not sure what he’s going to do. He also wishes he had coverage for his businesses; he’s had to hire additional workers to make up for his absence, and he’s struggling to make his business loan payments. He decides he’s going to have to close his business.
- Because Steve’s carrier classifies him as a white-collar worker, he was able to secure a benefit that lasts until he turns 67. His business overhead expense and bank loan disability insurance benefits only last two years, but that gives him some breathing room to keep his business running while he focuses on his health. He also has a residual benefit rider that allows him to claim partial benefits if he is able to go back to work on a part-time basis. After a couple of years, he uses this option because he is feeling a little better and misses work, but his doctor says the stress of working full time could be disastrous for his long-term recovery.
Are You Offering Your Business Owner Clients White-Collar Classification?
Some carriers will quote business owners as blue-collar workers. Other carriers have white-collar business owner programs that offer richer benefits. To qualify, business owners will have to meet certain carrier requirements, such as having been in business for five years or having at least 10 employees. The owner’s day-to-day duties also impact classification. Do the owners regularly perform blue-collar work, or are they mostly involved in administrative and management tasks? It may not always be possible, but if you can get your clients into these white-collar programs, they’ll have better coverage and more options for business overhead expense and bank loan disability insurance.
DIS has access to carrier options that treat small business owners as white-collar executives – even if they do some hands-on work, they can be bumped to the 5A class. Reach out to us for assistance. Also, download our Tale of Two Business Owners Flier to find out more about how these classifications can affect your business owner client’s coverage.