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Disability Insurance for Business Owners & Entrepreneurs

Researcher & Writer
November 28, 2017

If you own your own business, you know that every decision you make has consequences, good or bad.  Which is why we’ve found that in most cases, business owners and entrepreneurs are pretty savvy when it comes to understanding their insurance needs and will usually already have the basics like liability insurance and key man insurance in place.

Which is great!

Because now you have the coverage that you need to protect yourself and your business against others becoming injured and from all the financial hardships which would occur if you were to die prematurely.

But what if…Instead of dying, you “only” became sick or injured?  What would happen to your business and your family if you were no longer able to perform the essential duties that you do now in order to make your business work?

If you’re not sure…This is why you may want to consider purchasing a disability insurance policy for you and your family so if you do become too sick or injured in the future, your family won’t have to discover the hard way, just how much you do for them each and every day!

So, what is Disability Insurance?

There are many types of disability insurance policies out there (just like there are many types of health, life or even car insurances policies), but the basic objective of disability insurance policy is to help you have supplementary income in case you can no longer work.

The key is…Understanding what “type” of disability insurance policy you and your family may need and then determining which insurance company is going to offer you the “best” price for that policy.

Now the good news…Is that here at TermLife2Go, we offer many different types of disability insurance policies which means that, at the end of the day, we don’t need to “sell” you on any one “type” of policy, we just need to explain the differences to you so that you can decide which one is best for you.

But first we need to…Fully understand your needs so that we can get a better idea about what you’re looking for and then, we need to make sure that you understand the differences between the various types of disability insurance policies.

Here is a real world example….

Recently had a client who owns a “self-service” coin laundry business give us a call.

And since…We here at TermLife2Go aren’t super familiar with how the coin laundry business works, we were thinking to ourselves…“this is a pretty passive sort of business, how much coverage could this client really need?”

But then we began to ask a few questions…And as it turns out, there is a lot too owning a “self-serve” coin laundromat business.  Which is why this gentleman was looking for a long term disability insurance policy so that if he did become too sick or injured to perform his duties, he would have enough income to be able to pay someone else to:

  • Ensure that all of the machines were kept in working order,
  • Handle the daily coin collections,
  • Ensure that all cleaning supplies and vending supplies were kept in stock,
  • Handle payroll,
  • Etc.

Now…The reason why we use this example here in this article is because it helps us highlight just how important it is to consider all of ones “roles” in a business when considering what “type” of disability insurance policy one should purchase.

And…How at the end of the day, only you the business owner is going to fully understand exactly what you do for your business and understand just how essential you are to the day to day management.

So, with that said, let’s now take a moment and begin looking at what your options are.

Types of Disability Insurance for Business Owners

Once you’ve decided to get a disability insurance policy, you’ll want to decide whether you’ll need a:

  • Short term or long term disability insurance policy?
  • And if an ANY occupation or a OWN occupation disability insurance policy will be best for you.

So..Let’s now examine what the differences between these “types” of disability insurance policies so that you’ll have a better understanding about which “one” might be the best for you.

Short Term vs Long Term Disability Insurance

Short Term disability insurance will cover you for a pre-determined amount of time. This is usually the most useful for injuries that cause a temporary disability. Say you severely break a leg and are bedridden for a “short” period of time, or you have to undergo a series of surgeries after your accident.

In cases like these…The prognosis is good, but it is going to take some time to recover. While you’re undergoing treatment and regaining your faculties, short term disability insurance has you covered.

The problem is…What if you’re “condition” doesn’t cause a short term disability?  In cases like these, having a policy “kick in” immediately following your injury or diagnosis will certainly be helpful, but short term disability insurance policies will expire.

And then what happens? 

This is why many people prefer purchasing a long term disability insurance policy so that they are better protected in the event of a catastrophic injury or sickness.

Long term disability insurance

Long term disability insurance policies on the other hand, are what you will need should you become disabled for the rest of your life. Say you suffer a traumatic brain injury (TBI) and are no longer able to work. Long term insurance will cover you for a longer term, but only if you “qualify” for the benefits that you purchased which brings us to Own vs Any occupation.

Own Occupation vs. Any Occupation

Now that we have a general understanding of the differences between a short term disability insurance policy and a long term disability insurance policy, we now want to talk about the differences between an OWN occupation (own occupation disability insurance) and an ANY occupation “type” of disability insurance policy.

Understanding the difference between OWN and ANY occupation is probably the most important concept you will need to grasp when purchasing a disability income insurance policy.  So, please be sure that before you purchase any “type” of disability insurance policy that your agent fully describes what type of definition the policy provides for disability and be sure to READ the definition section of your insurance policy once your coverage is in place!

(Can you tell we’re a bit passionate about this stuff?)

Now…There are two types of disability insurance as far as occupations are concerned: disability insurance that covers you if you lose the ability to continue your current occupation and disability insurance that covers you if you cannot continue working at all.

Own Occupation (AKA Your Regular Occupation):

As a business owner, running your business is your occupation. Which means that if you we suddenly became sick or injured and weren’t able to perform your current duties as a business owner, your disability insurance policy would begin to pay you your benefits regardless of whether or not you could perform another job.

For example…let's use our our laundromat owner.  If he were to become injured in a car accident and was no longer able to collect his coins and repair his machines, he would be able to qualify for his disability benefits even though he might still be able to work somewhere else.  Maybe as as a sales representative for a laundry machine company.  Now let’s compare this “OWN” occupation to that of an “ANY” occupation policy.

Any Occupation:

Any occupation disability insurance policies will require that you become SO disabled that you can’t perform ANY occupation before the policy will begin paying you a benefit or continue to pay your income benefit.

So back to our…Laundromat owner.  Had he purchased an ANY occupation policy and been injured in the same imaginary car accident, his injuries would need to be severe enough that he would be unable to perform ANY job before he could collect his benefits.  Which means that even if he weren’t able to collect his coins and repair his machines but was able to become a “greeter” at Walmart, his policy would not pay.

Are you beginning to get the idea here?

This is why as a general rule of thumb, we typically like to recommend that folks purchase an “own” occupation rather than an “any” occupation but you need to remember, that “own” occupation will generally cost more than “any”.

This is why…We leave this decision up to you, but want to make sure that you are fully aware of the differences so that you can make the right decision for you!

Additional things you should be aware of include:

Disability Insurance: Regular Payouts

Unlike some life insurance policies that give a lump sum payout, disability insurance pays you money every month, like a paycheck. This is because disability insurance is meant to be income replacement that helps you maintain your standard of living.  How long you want to receive these payments will generally determine what “type” of disability insurance policy you choose to buy and will certainly affect the price that you end up paying for your coverage.

Determining coverage amounts

Deciding on the disability insurance coverage amount you’ll need (re: benefit) is a bit more complicated if you are a small business owner than if you work a job. If you work a job, you need something comparable to your after-taxes income. However, if you own a business, you may not get the same set salary every month.

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