Disability Insurance for Business Owners
Small businesses are an integral part of the country’s economy, but what happens when business owners get sick? Disability insurance for business owners provides crucial protection for businesses, owners, and employees.
Small Business Statistics
Don’t let the term “small business” fool you – these businesses may be small, but their impact is huge.
- How many small businesses are there in the U.S.? According to the U.S. Small Business Administration (SBA), there are 33.2 million. There are only 20,139 large businesses.
- What are small businesses? The SBA says small businesses are usually defined as independent businesses with fewer than 500 employees.
- How many people work for small businesses? The SBA says 61 million private sector employees – nearly half of all private sector employees – work for small businesses.
These numbers make it clear that small businesses play a vital role in the economy. It’s important to protect these businesses and their owners through disability insurance.
Investing in Disability Income Insurance
Business owners invest a large amount into their companies – both in terms of time and money. It makes sense for them to invest in disability income insurance, too.
Most people only have to worry about how a disability could impact their personal finances. Business owners also have to worry about how a disability could impact the financial health of their business.
Think about what happens when a small business owner is unable to work because of illness or injury.
- If the business doesn’t have any employees, work grinds to a complete halt. There’s no way to make income, but rent, taxes, bank loans, and other overhead expenses don’t stop.
- If the business has employees, major business disruption is still likely. Most small business owners take a hands-on approach to running the company. It might be that no one else has the skills or experience needed to cover key duties. Furthermore, hiring and training a new employee for the role will require time and money. In the meantime, profits may take a major hit.
Long-Term Disability Insurance
Some workers receive long-term disability insurance through their jobs, but business owners don’t have employee benefits. The only benefits they receive are the ones they secure for themselves.
Thankfully, business owners can secure insurance coverage on their own. Many business owners already understand the need for health and life insurance. Disability insurance is another important type of insurance to buy.
Individual disability insurance replaces a portion of the policyholder’s lost income in the event a disability prevents the policyholder from working. Individual disability income insurance provides important income protection for business owners on a personal level, whereas policyholders can use monthly disability benefits however they see fit – for example, to cover rent or mortgage, to buy groceries, or to pay off medical debt.
Disability insurance companies provide different coverage options. When shopping for coverage, consider the following:
- What is the monthly benefit? The percentage of income the policy will replace can vary.
- What additional benefits and terms are available? Insurance companies offer different riders, which can add coverage options and change the terms of the policy.
- How long is the waiting period or elimination period? This is how long you’ll need to wait before you can start receiving disability benefits.
- How long is the benefit period? This is how long you can continue to receive benefits if you still meet the eligibility requirements – i.e., while you’re still disabled and unable to work. Benefit periods can vary substantially between policies.
- What does it cost? Underwriting criteria can vary from one disability insurance company to the next. You may also qualify for discounts.
Business Overhead Expense Insurance
Whereas individual disability insurance policies help business owners protect their personal finances, business overhead expense insurance helps them protect their business.
If a business owner is unable to work because of a disability, business overhead expense insurance can cover many overhead expenses, such as rent, utilities, employee salaries, payroll taxes, property taxes, professional membership dues, and accounting fees. The benefit period is usually between 12 and 24 months.
This coverage can help the business survive in the owner’s absence, giving the owner time to either recover and return to work or to find another long-term solution for the business.
Key Person Disability Insurance
Some business owners are sole proprietors with no employees. These business owners only need to worry about their own health and ability to work. However, other small businesses have employees – some of whom might be as vital to the ongoing operations of the business as the business owners themselves.
What happens if one of these essential workers becomes disabled and can’t work? The business could suffer: it may lose revenue and the owner may need to spend extra money hiring and training a temporary replacement worker.
Key person disability insurance provides protection against this risk. The business owner can use the benefits to make up for lost income or to cover costs involved in hiring a temporary replacement. The benefit period usually lasts for 12 to 24 months.
Bank Loan Disability Insurance
Many small business owners have bank loans. When they take these loans out, they assume they will be able to generate a profit and repay the loan. However, if a disability prevents the owner from working and earning revenue, the bank loan doesn’t just disappear.
Bank loan disability insurance provides coverage for such scenarios.
Disability Insurance Coverage for Your Employees
Small business owners with employees should also consider the disability income insurance needs of their workers. They might feel like they can’t afford to offer benefits, but the reality is they might not be able to afford not to. Jobseekers often look at openings at both large and small companies. If the large companies offer great benefits and the small companies don’t, the best workers will likely choose to work for the large companies.
To attract top workers, small businesses need to offer a competitive compensation package – and that should include disability income insurance.
Some employers offer group long-term disability insurance benefits. Another option is guaranteed standard issue disability insurance. When three or more people buy disability insurance together, a multi-life disability insurance discount may be available.
Buy Disability Insurance for Business Owners
As a business owner you’ve worked hard to build your business from the ground up. A disability could ruin everything, leading to both personal financial ruin and the collapse of your business. Disability insurance for business owners provides the protection you need for your personal income and business expenses. An insurance agent can help you find the disability insurance you need.
If you’re an insurance agent, there’s a good chance many of your clients are small business owners. Help them stay in business by educating them on their disability insurance options and support them in finding the right coverage.
