OverviewBusiness Owner Disability Insurance

Just as individual disability insurance is designed to provide a portion of your normal income in the form of a monthly benefit, a key person policy can do the same for your business.
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Business Owner Disability InsuranceWhat Is
Business Disability Insurance?

Key person insurance for your business can include many different types of insurance. Common coverages are life, critical illness and disability insurance – all serving an important purpose in security of your business. These policies can be purchased by a company on any employee that is vital to the success of the business operations. If the key person were unable to work due to disability, illness or even death – the financial stability and security of the business and all involved could be at risk. We are going to specifically look at disability insurance for key employees. Ensuring your business has the required funds to cover ongoing expenses if you, your partner, or a key employee are unable to work, is extremely important for the longevity of your company, and the security of all employees. The insurance payout from the policy can help cover your monthly expenses, pay debts, keep the business afloat, and fund a buy/sell agreement. Without this influx of cash, the business may not be able to survive.

Business Owner Disability InsuranceHow Does
Business Disability Insurance Work?

Just as individual disability insurance is designed to provide a portion of your normal income in the form of a monthly benefit, a key person policy can do the same for your business. The process from application to expiration follows the same steps:

  • Select the coverage amount that is right for you and your business.
  • Further customize your coverage by adding in any additional riders based on your needs.
  • Pay your required monthly premium.
  • Submit a claim if you become disabled.
  • Once the waiting period has been satisfied (the set number of days between the date of disability and the date of the first benefit payment, which was selected at the time of application), your monthly payments will begin.
  • Payments will continue until you return to work or your benefit period expires (again, you selected this in your application).

Business Owner Disability InsuranceAre There Different Types Of
Business Disability Insurance?

The needs of each business are unique – and business disability insurance gives you the freedom to choose a plan that fits your specific business’ needs. Whether your business is in the early stages of operation, in a state of growth, or even well-established, it relies on you, and the other members of your team to stay operational. A proper business insurance plan provides security in all aspects of your business including:

  • Key person insurance – disability insurance coverage that provides funds that can ensure the business keeps up with ongoing expenses while the key employee focuses on recovery, or while seeking out a suitable replacement.
  • Business overhead expense – is a disability insurance policy that provides non-cancellable coverage in the form of reimbursement for eligible business overhead expenses, during a period of total disability.
  • Fund a buy/sell agreement – in a situation where there is an arrangement for a disabled partner to be bought out, disability insurance can be used to provide the other partners with the required funds to purchase the shares of the disabled partner.
Key person protection Business overhead expenses Buy/sell agreement funding
When is a benefit payment made?
  • If a key person becomes disabled.
  • If you (the business owner) become totally disabled.
  • If you or one of the partners becomes disabled.
When is it the best fit?
  • A company with certain employees that contribute significantly to the success of the company.
  • Any owners that have a business with monthly expenses.
  • Businesses that are privately-held by a group of owners.
Coverage details – how long does it last?
  • Monthly benefit payments for the shorter of: the policy coverage term (usually 1-2 years) or until the employee can return to work.
  • Monthly benefit payments for the shorter of: the policy coverage term (usually 1 year) or until you are able to return to work.
  • Commonly a single, lump sum payment after the required waiting period is satisfied (1-2 years typically).
What benefits does this coverage provide?
  • Potential income for the employee while they are disabled.
  • Funds for the business while their key employee is disabled for expenses, debt servicing, finding a suitable replacement.
  • Focus on your recovery.
  • Pay monthly expenses to keep business afloat.
  • Allow company to retain employees.
  • Minimize disruptions to the ongoing operations of your business.
  • Policy pays out the required funds to purchase shares of a disabled shareholder or partner.
  • Reassurance to all stakeholders including suppliers and creditors.
  • A clean transition of the business as outlined in the agreement, ensuring that all parties are taken care of.

As a business owner, you can appreciate the time, dedication – and frankly the blood, sweat and tears that go into starting, growing and maintaining a business. With so many different obligations within the business, it can be hard to find the time to properly plan for the “what ifs” that could change the trajectory of your business. Proper business planning involves implementing a comprehensive insurance plan that will protect you, your partners, employees, and as an extension, their families. Taking the time to properly review your business needs can make a world of difference if you, or a key person in your business experiences a disability, illness, or death. You wouldn’t want to leave your personal affairs in a state of disarray, and your business is no different. Our team at Hometown Life Insurance has the knowledge and experience to assist you in understanding and executing on your business insurance planning needs.

Business Owner Disability Insurance

Other Questions
People Ask Us

What if I get injured outside of work?
  • With disability insurance, an injury suffered outside of work would likely be covered. Unlike coverages that offer protection for only work-related injuries, your individual disability plan provides additional support. There are certain exceptions that are considered more “high-risk activities”, but those would be specifically stated in your policy at the time of application if you participate regularly in certain high-risk activities. Generally, though, you would be covered!
What will happen to my business if I become disabled?
  • As a business owner, you have concerns about what would happen to your employees and your business if you became disabled. There are certain duties you have within the company and the countless hours you invest into growing your business would be impossible to replace. It can be especially difficult to secure any loans at the time of disability because there is a significant risk that your company may not survive. Disability insurance for business owners can provide coverage to protect your personal income from the business, but also provide funds to cover your ongoing business expenses. Ensuring your company will be able to survive a period of disability with insurance will help protect your employees, family and business.
What are the limits?
  • The monthly benefit paid out from a disability insurance policy is based on your income earned while working. To ensure that there is incentive to return to work, disability insurance can’t cover your entire income. The maximum coverage a disability policy would pay would be 85% of your after-tax income, but it can be lower depending on the job you have and the insurance company’s restrictions.

Copyright © 2021 Hometown Life Insurance.

Copyright © 2021 Hometown Life Insurance.