Why Disability Insurance Is Important when You Start A Business
Running your own small business can be exciting. It can also be expensive. Prioritizing how you spend money to grow your business is key as you may need to invest in equipment and technology, hire employees, and launch marketing campaigns. As you juggle these costs with your cash flow, other expenses, like disability insurance,can fall to the bottom of the pile.
Now that you are self-employed, however, it’s time to seriously consider how to best protect yourself, your family, and your business should you become unable to work. Disability insurance can offer a layer of protection you need.
Do I Really Need Disability Insurance?
Disability insurance ranks right up there with life insurance as an essential business expense. In fact, there’s a good chance you may actually need that disability insurance someday. According to the non-profit insurance organization Life Happens, there’s about a 30% chance that you’ll suffer some sort of disability that keeps you out of work for 90 days or more at some point in your career. Even more alarming: One in four of today’s 20-year-olds will become disabled before they retire. Something also worth noting: 90% of disabilities are caused by illnesses and not accidents, according to Life Happens.
Disability insurance offers financial security that would allow you to pay your household bills and take care of your family if you’re out of work. It would also help keep your business afloat during a difficult time. For example, if you manage your cash flow with invoice financing advances through Fundbox and you suddenly are unable to work, your insurance can help pay for someone else to step in and run your business. This includes ensuring that these advances are repaid.
How Much Coverage Do I Need?
If you previously worked for a large company, chances are that your employer offered disability insurance as an employee benefit and you never gave a second thought to your coverage. That’s because your employer probably paid for the group coverage at no cost to you and you automatically qualified regardless of any previous medical conditions. Your coverage amount likely equated to half to two-thirds of your base salary, according to Life Happens. Unfortunately, when you leave a job, you can’t take this coverage with you. Now that you have your own business, it’s time to get your own disability coverage.
For starters, figure out how much insurance you need by using an online calculator found at Life Happens and many insurance providers, such as MetLife, Principal, and Mutual of Omaha. This simple tool allows you to plug in your current monthly income and all of your expenses, including mortgage or rent, car payment, medical costs, and loan payments. Using your supplied figures, the calculator will estimate the amount of coverage you’ll need to maintain your current standard of living should you find yourself disabled and unable to work.
How Can I Get It?
You have two main options for buying disability insurance now that you’re a small business owner: through a professional organization or on your own. Here’s more information about both options:
Purchase coverage through a professional organization or association
Many organizations offer disability insurance to their members, and this generally makes it easier for you to get basic coverage without having to do much research. Premiums are often based on your age and income, and you automatically qualify despite your medical history. Although this option requires joining a group organization, the membership dues may be worth it as the insurance cost will likely be lower than through an individual plan. At the same time, there are some drawbacks. For starters, if you close your business or change professions, your insurance may not travel with you. Also, the organization may decide to do away with disability insurance coverage at some point—leaving you hunting around for new insurance.
Buy your own individual plan
To go this route, you can buy your own policy through an insurance agent and your coverage will stay with you even if you close your business or change careers. This option lets you consider the best plan for you by evaluating different policies—an option you won’t have if you purchase through a group plan. There is one big pitfall here: An individual policy can be expensive, depending on the particular benefits and features you elect.
To assess your particular needs and learn how much a disability insurance policy will cost you, it’s a good idea to contact an insurance professional in your area.