Disability Insurance for the Small Business Owner

Business owners have a lot of things to think about. Not only are they responsible for their own livelihood, but the employment and livelihood of others. What would happen to you if you were disabled and unable to work for a significant period of time? What would happen to your family? Would your business be able to stay afloat? If not, what would happen to your employees?

Disability income insurance is the only way to protect yourself and your business from the devastating financial impact of an illness or injury that makes you incapable of working. It provides income replacement if the insured person—in this case, you—becomes disabled and is unable to work. Because it replaces a percentage of your pre-disability income, you are allowed to continue to support your family AND keep your business up and running while you recover.

Business owners can purchase both short- and long-term disability income insurance for themselves, as well as other special disability policies that help protect the business in a variety of circumstances. In addition, you may want to consider providing group disability income insurance to your employees as an employee benefit.

First, let’s touch on some of the specialty disability policies available for business owners.

  • Business overhead expense (BOE) insurance pays for existing overhead expenses and other fixed costs (salaries, rent, leases and utilities, and other ongoing fixed expenses) while you are disabled. The purpose of BOE insurance is to keep your company afloat until you can return to work.
  • Key person disability insurance covers the costs of finding, hiring and training a replacement if a key employee is temporarily disabled. It protects your business from the loss of the key person’s knowledge, experience and skill.
  • Disability buyout insurance funds a buy-sell agreement between partners in a business. A buy-sell agreement allows remaining partner(s) in a business to purchase a deceased or disabled partner’s interest in the business. Disability buyout insurance transfers the risk of that death or disability to the insurance; the insurance provides the money for the remaining partner(s) to buy-out the other and remain in business.

Business owners should also consider offering some type of group disability insurance as a benefit to employees. You can offer either short- or long-term disability insurance, or both.

  •  Short-term group disability insurance (STD) typically provides weekly benefits for employees who are totally or partially disabled by a covered illness, injury, pregnancy or mental disorder. This can be a very valuable benefit for employees, as the cost of individual short-term disability insurance can be quite high.
  • Long-term group disability insurance (LTD) provides income replacement for employees with more catastrophic types of disabilities for a longer period of time. LTD usually has an elimination period (the time period after the disability begins when the benefits kick in) of 90 days or more, and the benefit period can be for 2, 5, or 10 years, up to age 65, or even for the insured person’s lifetime.

Disability insurance is quite complex. We can help you sort through the options and determine which ones are right for you. The most important thing to remember is that after a disability is too late to worry about disability coverage for yourself, your business partners, and your employees. Contact us today to learn more.


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