By Pascale Hansen

As a business owner, your livelihood is tightly interwoven with your ability to work. Whether you are a solo entrepreneur or the leader of a larger organization, your income and the success of your business largely depend on your health and ability to perform your job effectively. Unfortunately, accidents and illnesses can strike unexpectedly, jeopardizing not only your personal income but also the financial stability of your enterprise. This is where disability insurance comes into play. In this article, I will delve into the importance of disability insurance for business owners, discussing how it protects your income and ensures the continuity of your operations.

Understanding Disability Insurance

Disability insurance is designed to replace a portion of your income if you become unable to work due to a disability caused by accident, illness, or injury. For business owners, this type of insurance can be crucial for mitigating financial risks that arise from unexpected health issues.

There are two primary types of disability insurance:

Short-Term Disability Insurance: This typically covers a portion of your income for a short duration (usually a few months) following an incapacity.

Long-Term Disability Insurance: This covers a significant portion of your income for extended periods, often until you recover, reach retirement age, or pass away.

Why Disability Insurance is Essential for Business Owners

1. Income Protection

The most immediate advantage of disability insurance is income protection.

Here are the statistics for the USA:

• Approximately one in seven Americans between the ages of 35-65 will become disabled for at least five years (or longer.)
• The odds of becoming disabled vary with age; leveling off by the age of 60, so a 30-year-old has a 1 in 3 chance of becoming disabled, a 40-year-old has a 3 in 10 chance, and a 50-year-old a 5 in 22 chance of becoming disabled.
• Nearly 50 percent of foreclosures are caused by a homeowner becoming disabled.

The Canadian statistics:

• In 2017, one in five (22%) of the Canadian population aged 15 years and over – or about 6.2 million individuals – had one or more disabilities.
• The prevalence of disability increased with age, from 13% for those aged 15 to 24 years to 47% for those aged 75 years and over.
• only 62% of Canadians with disabilities aged 25 to 64 have jobs, compared to 78% of Canadians without disabilities

These statistics highlights the real and present danger of disability. As a business owner, your personal income is often tied to your company’s profits. Without a sustainable income, personal financial obligations—like mortgages, student loans, and everyday expenses—can quickly spiral into unmanageable debt. Disability insurance provides a safety net during these financial hardships, ensuring that you can maintain your financial commitments.

2. Business Continuity

Without a business owner at the helm, a company may struggle to function efficiently. Disability insurance can help fund operational expenses during your recovery period. This could involve hiring temporary help or keeping essential business functions running smoothly until you are able to return. In Canada, 4.7% of such businesses closed permanently after a business owner became disabled, compared with 1.0% of businesses on average. According to a study from the American Council of Life Insurers, 30% of businesses do not reopen after a disaster, which reinforces the need for a contingency plan powered by adequate insurance coverage.

3. Preserving Business Value

Your business has intrinsic value, built through years of effort, investment, and relationships. If you cannot maintain operations due to a disability, the value of your business diminishes. Disability insurance acts as a safeguard for this investment, offering financial support that can be used to sustain business activities, address clients’ needs, and keep your brand alive during your recovery. This is particularly important for businesses that rely heavily on the owner’s presence, expertise, and relationships, such as consultancies and professional services.

4. Peace of Mind

One of the often-overlooked advantages of disability insurance is the peace of mind it provides. Knowing that you will have financial protection in place can significantly reduce stress and allow you to focus on recovery if an unexpected event were to occur. Business owners face enough uncertainties; disability insurance can serve as a stabilizing force.

5. Attracting and Retaining Talent

For employees, knowing that a business owner has disability insurance can enhance loyalty and morale. It demonstrates a level of preparedness and concern for the welfare of all employees, emphasizing that the business is well-managed and resilient to potential disruptions. When it comes time for recruitment, offering a well-rounded benefits package—including the commitment to protect the business owner through disability coverage—can make your business more attractive to top talent.

Choosing the Right Disability Insurance

When considering disability insurance, business owners should keep the following in mind:

Amount of Coverage: Ensure that the policy covers at least 60-80% of your income. Some policies also offer additional coverage for business expenses.

Policy Terms: Examine waiting periods, benefit periods, and whether the policy is “own occupation” or “any occupation,” as this impacts when you will start receiving benefits and for how long.

Premium Costs: Evaluate your budget to ascertain how much you can afford to spend on premiums while still availing significant coverage.

Provider Reputation: Research insurance companies for their claims-paying reputation and customer service reviews.

The importance of disability insurance cannot be understated for business owners. As much as entrepreneurship carries the promise of reward, it also comes with inherent risks. A comprehensive disability insurance plan not only protects your income but fortifies the foundation of your business, allowing it to survive and thrive even in challenging circumstances.

Incorporating this essential aspect of financial planning is a proactive approach that positions business owners for both stability and success.

By investing in disability insurance, you're not just protecting your future; you’re investing in the longevity and health of your business.

Contact us today for a complimentary discussion of all your insurance needs in either Canada or the US.

Pascale Hansen is the Co-founder, CEO, and Financial Strategist at Zada.

#disability #bizcontinuity #peaceofmind #disabilityinsurance

References

Social Security Administration. (n.d.). Disability Benefits.

American Council of Life Insurers. (n.d.). The Importance of Disability Insurance.

Small Business Statistics Canada (2024)

Statistics Canada