If you own a business then disability insurance is a must for a whole host of reasons. As a business owner it is vital that you replace any income you might lose due to sickness or accidents; not just to cover your personal outgoings, but also to cover the costs of running your business.
The Council for Disability Awareness (CDA) revealed that a staggering one in four people entering the workforce will become disabled before they retire, resulting in time spent off sick of an average of almost three years. These disabilities are not often attributed to accidents whilst driving, for example, but are more likely due to illnesses such as cancer and heart disease. Of course, as a business owner you are most probably the driving force behind your business, and thus the financer, so you need to make provisions for what would happen if you were to fall ill and be unable to work.
It is highly advisable that you contact an experienced insurance broker when taking out disability insurance as it can be difficult to figure out exactly how much cover you need. Disability insurance for your business, and disability insurance for yourself are two separate issues as you need to arrange cover for both your business outgoings and your personal commitments.
With regard to your business outgoings you need to take into consideration a number of expenses including rent, utilities, payroll, equipment or vehicle leases, advertising, and employee benefits. On the other hand, your personal outgoings may include mortgage payments, car payments, utility bills, childcare costs, and food. Experts recommend that you start by addressing your personal outgoings first then move on to tackling your business overheads.
If you are a member of a professional or industry association it pays to check with them first to see if they offer disability coverage as they often offer the best deals. This particularly applies if you run a small business as you will have little influence in obtaining a reasonable quote if you require a relatively low level of cover; group rates are often less expensive than individual premiums.
In common with many other types of insurance policies you may get a better deal by bundling a few policies together. For example, if your company requires group voluntary disability coverage for its employees you may receive a discount by taking this out alongside your individual disability policy. Likewise, you may be offered a cheaper quote if you combine your personal disability policy and your business overheads policy.
Before you take out a disability policy make sure that you read the small print very carefully. Terms to look out for in particular include ‘part-time, full-time’; this needs careful investigation as it relates to how much you will be able to claim if you decide to return to work on a part-time basis. ‘Own occupation’ is also a key term as insurers use this to state that you will still receive benefits as long as you are not working in your original job. Also, find out where your insurer stands with regard to ‘replacements’; are you able to hire a replacement to cover your duties whilst you are off sick without this affecting your payout? In addition, check how inflation will affect the value of your coverage.
It can be very difficult to obtain disability insurance as a business owner if you have never taken out a similar policy in the past; making life very awkward for new business owners. If you are currently employed and have disability insurance, but are planning to work for yourself in the near future, find out whether you could retain the policy after you resign.
The type of business you run can have a significant impact on the sort of disability cover you require. All businesses have different structures therefore the disability of a key worker can affect the business in different ways. For example, if you run an architectural firm where partners share costs and clientele your absence could lead to an increase in day-to-day pressures, and a loss in income. Alternatively, perhaps your company relies on you to solve problems, and provide technical expertise; your loss could significantly impact upon your firm’s ability to provide a service at all!
If your business is a partnership one option is disability buyout coverage. This type of policy covers the cost of a disabled partner’s share is they are expected to be unable to work for such a long length of time that it would make more sense for them to leave the business. On the other hand, if you are the driving force behind your business then key person coverage could be a good option as this provides funding when a key worker is significantly affected by ill-health.
Whichever type of disability insurance policy you decide to take out always bear in mind that the majority of policies include a thirty-day waiting time until they start to payout. For this reason, it makes sense to set up an emergency fund to cover this interim period.
By taking into account the impact of a disability on both your personal finances, and upon your business, you can find a level of disability cover that will provide peace of mind should the worst happen, and safeguard your most valuable assets.