How disability insurance can help protect your business

BY ANDREW STEWART

What matters most to you? Your income helps achieve your financial goals and supports yours and your family’s lifestyle by paying expenses related to where you spend your time, supporting your partner and dependents, caring for an aging parent, and growing your assets.

As a business owner, you have worked to make your business a success. That is why protecting it from unexpected events is so important. For instance, what would happen if you became disabled and could not work? How would you keep revenue and savings, which you have worked so hard to build up, from rapidly depleting before you return to work? Potentially it could jeopardize and destroy everything you have created. It is why you need a plan. One in three Canadians will become disabled for more than 90 days before they are 65. Properly insuring your income and business expenses helps ensure you receive an income, your financial goals are met, your business can continue to operate, your assets can remain in place, your business survives and can be passed along to future generations.

Why should every business owner consider an overhead expense plan?
Simply put it is a disability insurance policy for business owners, which could help cover eligible business expenses if you cannot work because of a disability. If you are running your practice or fee-for-service business, an overhead expense plan allows you to focus on recovery, keep valued staff, and keep your business plans on track. You choose how long your benefit coverage lasts, either up to 12 or 24 months. The amount of coverage you can get depends on your occupation, industry, and eligible monthly business expenses. When you purchase your policy, you pick a maximum monthly expense benefit amount. If while disabled your expenses are less than this amount, you can carry the difference over for future months.

So, what are eligible business expenses?
Paying ongoing expenses such as employee salaries, rent, utilities, internet, phone, and fax lines and lease costs for equipment will certainly help to avoid your business’s financial downfall.

No one expects to be disabled, so let’s look at a scenario to see how the overhead expense plan works.

Richard is a lawyer with a growing practice. On his way home from work one evening, he is seriously injured in a car crash. Richard needs immediate reconstructive surgery, followed by months of rehabilitation before he can walk again. While Richard focuses on recovery, his business is in trouble. Since there are no other lawyers able to see clients, his office assistant cancels all appointments until they can hire a short-term replacement. Within a month, they have found a replacement. But business and revenue are down 40% because of this delay. Richard assumes he will be able to return to work. How did Richard avoid financial hardship? Three years before his car crash, Richard bought an overhead expense plan. After his crash, the insurance company reimbursed him for expenses up to the maximum monthly benefit amount Richard picked when he bought his policy.

A question every business owner should ask themselves is: How long could your business stay open? Disabilities lasting longer than 90 days tend to be long term. The percentage of people age 30 who will become disabled for at least 90 days before age 65 with an average duration of 3.2 years is 42%. For age 40 the average duration increases to 3.9 years and the percentage of becoming disabled is 37%. At age 50 the chance of disability reduces to 28% but the average duration increases to 4.7 years.