17 percent of American families (1 in 6) have at least 1 adult who is disabled from employment (Source: 2000 U.S. Census) 
READ MORE
82 percent of American workers have inadequate or no disability protection (Source: Consumer Federation of America and American Council of Life Insurers, 2003) READ MORE
Small Business IQ: Disability Insurance Needs
Most large companies and businesses offer their employees extra benefits, like vacation time, sick leave, life insurance and even disability insurance. But what happens if you work for a small business or work for yourself? Who is looking out for you?
If you or a key employee in your small business were to fall ill or have an injury, could your business survive? Could you stay afloat until the disabled person returns to work? These are vital questions to ask yourself. Without disability insurance, you could be setting up your business for bankruptcy.
Disability insurance will help fill in the gaps when the owner, partner or key employee of a small business cannot work. There are several types of disability insurance policies to choose from, making it easy to find the right fit for your business. Some policies are geared for individuals, while other policies will protect the company.
The most common type of work protection is disability insurance. These policies cover individuals who become disabled. The policy typically covers between 40-70 percent of the employee’s salary.
Another type of policy is disability buyout insurance. This is for a business that has a partner who becomes disabled. The policy will help the business buy out the injured partner while keeping the business intact and giving the disabled partner income.
For small businesses with few roles, key man insurance may be warranted. If a key employee, who is vital to the company’s success, is disabled, this policy pays out to the company, not the employee. Even if you are the sole employee, this type of policy is worth looking into.
Another policy for the self-employed is overhead expense insurance. This policy will pay your bills for up to two years, including overhead expenses, if you are disabled.
When determining which policy is right for you and your small business, there are several factors for you to consider, such as how much insurance you need, how long you need it for, and how much you can afford.
The first step in making these decisions is to look at your current finances. If you were to lose your paycheck today, how long could you and your company stay afloat? If you couldn’t make it to next week, you should consider short-term policies. If you have enough resources to last a few months, you can look into long-term policies. Most businesses, no matter the size, should have long-term disability insurance. Also, the more funds you have readily available, the longer you can extend the “elimination period,” which will reduce your premiums.
Be sure to look at the policy’s definition of “disabled.” This definition will be different in every policy and it is critical that you understand what the carrier considers to be disabled. Better policies will cover your ability to work in your own occupation, while lesser policies will consider you able to work in other occupations.
Adding a cost of living adjustment (COLA) option is a smart idea. This will give you increases in benefits that coincide with inflation.
If you or your small business belong to any associations, be sure to check with them to see if there are any group plans.
Two other options to consider are guaranteed insurability and non-cancelable policies. The guaranteed insurability will allow you to add more insurance in the future without having to medically qualify. The non-cancelable policy will give you fixed premiums and benefits.
Though seeking and obtaining the right disability insurance policy may seem daunting, it is an important task to take on. Statistics show that in their lifetimes, three out of 10 wage earners will become seriously disabled, according to the Social Security Administration. Chances are you or a key player in your small business will become ill or injured. Disability insurance can help protect you, your employees and your business.
References
- “For Entrepreneurs: Small Business Insurance – Disability Insurance Options.” Gaebler Ventures. http://www.gaebler.com/Disability-Insurance-Options.htm
- Zahorsky, Darrell. “11 Tips for Buying Small Business Disability Insurance.” About.com: Small Business Information. http://sbinformation.about.com/od/insurance/a/disability.htm