If you were injured or suddenly became seriously ill tomorrow, could you afford to keep your business running for six, eight or 12 months until you were able to return to work? That means paying your rent, utilities and other ongoing expenses and hiring someone to work temporarily in your place. And could you meet your personal obligations: home mortgage, car payments, grocery bills and other family needs?
If you have plenty of money in the bank or a rich relative, possibly, you could. Most small-business owners, however, don't have the financial resources to keep their businesses afloat during a long-term illness or disability. Nor have they properly insured themselves against the possibility they might not be able to go to work tomorrow.
"Disability insurance is almost always the last concern for business owners," says Joe Hernandez, vice president of Hamman-Miller-Beauchamp-Bebble Inc. Insurance in Long Beach, California. "Many owners have lost their businesses due to illness or disability."
That's because these owners have had to rely on less predictable sources of income: their savings, investments or loans from family and friends. Even Social Security benefits aren't a sure thing. Social Security pays about one claim in three. To collect, you must be totally disabled for six months and incapable of any employment. Even then, you have to wait at least five months for your payments to begin.
"You owe it to yourself and your family to provide for the future of your business," adds Hernandez. "Don't let all your hard work and investment go down the drain for lack of insurance."
There are three types of disability coverage. Income replacement coverage replaces income you've lost due to an injury or illness. Business overhead expense coverage pays ongoing business expenses while you're unable to work. This includes rent, phone, utilities, employee salaries and other costs of running a business. If you have a partner, you'll want to consider the third type of disability coverage: buyout protection. If you are disabled for an extended period of time, it provides the money for your partner to purchase your interest in the business.
Premiums for your disability insurance policy depend on the type of coverage you want, your age, and the level of risk an insurance company assigns to your type of business or industry. Other considerations are whether you want to protect yourself in the event that you can't perform any type of work, the length of time you'll wait before receiving payments (the longer you wait, the lower your premiums), and how long the contract will run--one year or until you retire.
As a general rule, disability insurance premiums range from about $75 to $150 per month for policies that replace 40 percent to 60 percent of your income before you were disabled or injured.
For information about what type of disability insurance might be right for you, consult your insurance agent. Also check with your local chamber of commerce, trade organization or small-business association to find out if any of them offer disability coverage to members.
"Disability insurance should be a part of every small-business owner's business plan," says Hernandez. "The benefits will keep you going until you're able to get back in business. That's reassuring for any entrepreneur."
Carla Goodman is a freelance writer in Sacramento, California.