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When it comes to disability insurance, business owners have many unique concerns.
- How would you cover your personal expenses if you were too sick to work?
- How would you cover your overhead expenses if you were too sick or injured to run your business?
- If you have a business partner, what would happen if one of you were disabled? How would you fund a buy-out?
- If you are taking out a loan, what would happen if you became disabled?
- Can I offer disability insurance to my employees?
There are policies available to help you cover all of these different needs.
- Personal, individual disability income policy. This type of policy should not be paid with business dollars. As a result, the policy is non-taxable for you.
Your definition of disability and premium will vary based on your occupational class. The strongest kind of contract is one that is Non-cancellable, guaranteed renewable with a lifetime own-occupation definition. This means that the policy will pay you a benefit if you can’t work in your occupation, even if you choose to work and earn money in another occupation. Your benefit will not be reduced by any other income you make.
To begin your process, go to What to Look For in a disability policy to learn more about policy benefits and provisions.
- Business Overhead Expense Policy. If you became disabled:
- Who would pay your bills?
- How would your business run?
- Would you still need to pay your employees?
- How long could your business last without you?
- How long could your business survive without an income stream?
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Business Overhead Insurance is designed to cover your overhead expenses if you were to become disabled. Typical expenses include payroll, rent and utilities. These policies typically have a shorter elimination period such as 30 or 60 days and usually have a benefit period of one year or 18 months. Premiums on these policies can be paid with business dollars. Although the benefit would be taxable income, the benefit is being used to pay for business expenses.
- Disability Buy-Out Policy. This policy is designed to provide an income to buy out a business partner in the event of a disability. It’s usually not enough to just have an agreement if there is nothing to back it up financially.
- Reducing Term Disability Policy. This policy is designed to cover a loan amount for a specified period of time. The amount of benefit decreases each year as the amount of the loan decreases.
- Group Disability Policy. This policy is an employee benefit for a business. The disability policy typically covers 60 percent of an employees’ pre-tax income to a maximum amount. Premiums are tax-deductible to the business owner and benefit is taxable to the employee. There are typically participation requirements for the policy to be in force (75 percent of all employees must sign up for coverage). Policies do not require medical underwriting. Definitions usually require claimant to be totally disabled and not capable of working in any capacity.
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