Disability Insurance for the Small Business Owner

Even with employees, small business owners can be seen as single-person operations. No matter how much you pay someone to help you manage, market, or produce items for your small business, no one is as invested in its success and revenue generation as you are.

If you should become ill, injured or otherwise unable to work for medical reasons, you may no longer be able to contribute to the success of your business. You may also no longer be able to motivate and oversee employees, and you may not be physically capable of dedicating the time to your business that it needs. Not only will this result in the decline of your overall revenue but it will also mean that your company can no longer pay you an income. This is why all small business owners must invest in both short- and long-term disability insurance policies.

Relying on Social Security

Many individuals take for granted that Social Security disability benefits will be paid to them when they are no longer able to work and earn a paycheck for their small business, however, this is not generally the case. It is notoriously difficult to get the Social Security Administration (SSA) to approve your application for disability benefits. In addition, when relying exclusively on Social Security, you are subject to their definition of disability, their waiting period and their benefit limits.

As a small business owner, you benefit from taking the risks that all entrepreneurs accept. Your drive can directly contribute to the amount of income you’re able to take from your business. Accepting the risk of Social Security taking care of you, and limiting your disability income to Social Security levels is not an acceptable risk nor is it reflective of the actual income you could have if you have your own disability insurance policy.

The Benefits of Disability Insurance

One of most important benefits of having a disability insurance policy as a small business owner is that you can buy a policy with a looser definition of disability than the SSA allows. The SSA considers individuals to be disabled when they’re no longer able to conduct the duties of any occupation. With your individual disability insurance policy, you can choose a definition of disability that is reflective only of your ability to do the work of your current occupation.

In addition, the SSA does not cover any short-term disabilities. Your disability must last at least one year or be expected to result in death in order to qualify for benefits.

Another concern when you rely on Social Security is not only will you have to wait for your application to be approved but you must also go through the SSA’s waiting period of five months before benefit payments begin. When you buy your own disability insurance policy, you can determine what waiting period you’re comfortable with. The longer your waiting period, the lower your premium will be as a long waiting period reduces the overall amount that the disability insurance policy must pay out.

Inflation can work against the value of your disability insurance payment. A cost-of-living adjustment, or COLA, added to your disability insurance policy will adjust your benefits annually in order to keep pace with inflation.

You also get to determine your own limits when buying a disability insurance policy. You may not be able to get full income replacement from insurers but you may be able to replace up to 80 percent of your income. The closer you want your benefit to be in terms of your actual income, the higher your premium will be.

Another benefit you can add to your disability insurance policy is guaranteed insurability benefits. This will allow you to add additional insurance amounts without going through underwriting again as this benefit guarantees your continued insurability. That means as your small business income goes up, you can mirror that increase through your disability insurance policy without worrying about how your health or age might affect your rates.

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