Why Business Owners Need Disability Coverage

An adviser explains how disability can ruin a business and the types of insurance business owners should consider


Most business owners don't consider disability coverage for themselves or their Key Employees, as they assume that their assets int he business will cover them in the event that they become disabled.  That is a dangerous assumption, and can end up costing business owners everything they worked so hard for.

Disability coverage may be the least understood and most neglected area of business planning. Most people know that it’s important to prepare for a possible death, but rarely do they imagine that a partner or key employees will become disabled. Yet disability can be a lot more damaging to a business than death and is much more likely to happen.

Depending on when they were born, workers are about four times as likely to become disabled as they are to die before reaching normal retirement age, according to Social Security Administration projections.

Say you and I are business partners, and one day I go skiing and fly right off a cliff. Suddenly, I’m seriously injured or even permanently disabled. I’m not adequately covered by disability insurance, and neither is the business. You break the news that you can’t afford to keep me on. I still own shares but you can’t afford to buy me out. I’m out of luck, but so are you. All you can do is hope that when the time comes to make critical business decisions, I vote your way. That’s a situation business owners want to avoid, yet many are unaware of the insurance options available to them.

There are two types of disability coverage that all business owners should have: key-person disability insurance, which pays the business to replace the individual who is unable to work; and personal disability insurance, which provides an income benefit to the disabled partner/owner.

There are two other types of disability insurance that some, but not all, business should consider. The first is buyout disability insurance, which pays the disabled partner/owner for his or her shares in the business, returning them to the company. (Owners with sole proprietorship don’t need this type of insurance.)

The second is disability insurance for overhead. This pays for operational expenses or salaries, depending on the business. It is especially useful for the owners of startup companies, who might otherwise have trouble paying the rent, keeping the lights on or retaining staff when a key team member can’t work.

For a young and vibrant business owner, it’s hard to imagine that a disability could ruin their business. It’s also uncomfortable to think about. But once business owners understand how badly disability can harm a company, they understand why having the proper coverage is so important.

Call Premier Insurance today at 239-542-7101 to find out how easily a disability program can be implemented in your company!


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