What would happen to your business if you were paralyzed for one year? How about sustaining an eye injury for six months? To the unprepared small business owner, an illness or accident resulting in disability can be devastating to your life and business. Disability insurance will replace your income in the event of an accident or illness. Before you express it could never happen to you, consider the hard facts.
According to the Disability Management Sourcebook, severe disabilities have increased 400% over the past 25 years from the age of 17 to 44. Before the age 65, one in seven people will become disabled for five years or more.
How Much Disability Insurance Do You Need?
If you think the government will take care of you, think again. Qualifying for Social Security disability benefits or Worker's Compensation will be challenging and the size of the payout will more than likely result in an income shortfall. Social security alone can have long waiting periods.
The important decision your small business will have to make is how much disability insurance you need and can afford. Review your assets and liabilities to determine how long you can go without income. Assess your expenses and make the necessary adjustments for a disabled lifestyle. In the event of a disability, you might have enough financial resources for the short term but it's more likely your business will need long-term disability insurance.
When determining your disability insurance needs remember you can't purchase 100% income coverage. Insurance companies won't cover your full income because they want to provide an incentive for you to go back to work. Typical coverage is 50-60% of your gross income. The bulk of disability policies cover anywhere from 40% to 80% of your income depending on how much you're willing to pay. Consider the following factors when shopping for disability insurance for your small business:
11 Tips For Buying Small Business Disability Insurance
Define Disability: Any small business owner who is considering purchasing disability insurance would be wise to compare each insurance provider's definition of the term. A disability policy can define disability as applied to your specific occupation or to any occupation. If you have skills transferable to another job and you are unable to perform your specific work some policies will not consider you disabled. Carefully review if you are covered for any or all occupations as well as the extent of coverage.
Add COLA: A cost of living adjustment (COLA) option will help your plan stay current with rising inflation. Following a disability claim, your benefits will be adjusted each year according to the pre-set adjustment established in the rider.
Check Associations: If you're a professional you might want to look to your industry's association for group plans. Many associations offer members various benefits including life and disability insurance. Review the cost and details of these plans.
Determine Disability Type: Not all disabilities will be covered under a policy. A computer programmer will be concerned with disabilities such as carpal tunnel syndrome. Which disabilities are covered under your plan?
Guaranteed Insurability: This is not a disability insurance option to ignore. If you want to add more insurance in the future without more medical qualifying, the guaranteed insurability option is best for you.
Non-cancelable Policy: If you want fixed premiums and benefits consider a non-cancelable policy. This is the best option for locking in your costs and benefits but it does come with a higher price tag. Work with what you can afford.
Look at Financial Ratings: Before you make the final decision in selecting disability insurance, review the carriers. A.M. Best Company or Standard and Poor's provides ratings of the financial strength of insurance organizations. Your insurance broker can provide you with ratings.
Play the Waiting Game: Increasing the waiting period or elimination period of the disability payout can result in lower disability insurance costs. Look at your financial resources and estimate how long you can last before receiving benefits. Keep in mind the first payment will usually be 30 days after your waiting period.
Review Existing Policies: Review your life and mortgage insurance policies to explore the cost of adding a disability rider on the policy. A waiver of premium rider can help reduce your expenses in the event of a disability.
Business Overhead Policy: A business overhead expense (BOE) plan can be a welcomed addition to policyholders who not only want income covered but overhead such as payroll, benefits, rent, and utilities as well. This option can help keep your business running while you recover from a disability.
Find an Agent or Broker: The business of insurance is complex and constantly changing. As a small business owner find a good insurance broker or agent who will help you find the best policy for your needs and help steer your business through the maze of disability insurance options.
Buying disability insurance for your small business shouldn't be based on premium price alone. Finding the best plan for your business will require a look at the options essential for your circumstances and budget.