When your body breaks down, your business is likely to follow. Disability insurance protects you from disaster.
When David Burros finally learned about disability insurance, it was too late to save his family's business. Ten years ago, his mother lost her antiques business after suffering a debilitating stroke. Burros, now a certified financial planner and CEO of Burros Consulting & Speaking, a personal and financial planning and consulting firm in Denver, advises his clients to learn from his experience and protect their businesses before it's too late.
"Your greatest asset isn't your business but rather your ability to create wealth," he says. "You can lose everything else, and you'll get it all back again if you have the ability to work. That's why disability insurance is the first kind of insurance business owners should consider."
Burros recommends purchasing long-term disability insurance to protect yourself from business loss resulting from a disability that lasts longer than 90 days. The price of your policy depends on the risks associated with your business, says Burros, but a business owner will typically pay approximately 3 percent of his or her after-tax income for a policy that provides coverage until age 65. In the event of a long-term disability claim, payments will be roughly equivalent to the after-tax income you achieved before your disability and are not subject to being taxed themselves.
To save money on your long-term disability policy, you can play the odds by purchasing a policy that ends before you reach age 65. Ninety-seven percent of all long-term disabilities last less than five years, according to Burros. "If you really need to save money, cover yourself for just five years," he says. "You're likely to be back to work within that time."