The Importance of Disability Income Insurance for Small Business Owners

Celebrated Chinese military general and philosopher Sun Tzu once mused that individuals should “plan for what is difficult while it is easy.” While Sun Tzu applied this wisdom to the so-called “art” of war, modern-day small business owners can benefit from putting this wisdom into practice for the benefit of their for-profit endeavors. By safeguarding their interests proactively, small business owners can better ensure what they’ve worked so hard to create isn’t significantly compromised when times get tough and things go wrong. 

In this article, the forward-thinking CPAs at Ferguson Timar discuss why small business owners generally cannot afford to cut corners when it comes to disability income insurance. Small business owners can employ a host of legal and financial safeguards to effectively protect their interests when the unexpected occurs. The key to understanding the value of disability income insurance is understanding the unforeseen should be proactively anticipated to keep it from compromising the strength of one’s business operations.     

The Unexpected Can Be Effectively Anticipated

Auto insurance ensures that should a crash occur, motorists aren’t stuck with bills for medical care and property damage that their budgets can’t easily absorb. Although individual motor vehicle collisions are unexpected, the risk of being involved in a crash is perpetual and, therefore, can be effectively anticipated. Anticipating that risk and effectively guarding against some of its potential financial consequences by purchasing insurance coverage, motorists can remain financially solvent, even if the aftermath of a crash is prohibitively expensive.

This is why small business owners need to invest in disability income insurance. Individuals don’t usually expect they’ll suffer debilitating injuries or illnesses. Yet, the risk that anyone could be affected in these ways is ever-present. Therefore, as a motorist invests in insurance coverage to safeguard against the risk of incurring financial consequences as a result of an unexpected crash, so should small business owners invest in insurance coverage to protect against the risk of incurring financial consequences due to an injury or illness that renders an owner or employee unable to work for a relatively long time.

How Disability Income Insurance Works

When an owner or employee of a small business suffers a significant medical condition that renders them unable to work for a lengthy period of time, disability income insurance policies reimburse that individual for a portion of their lost wages. Most policies offer a reimbursement percentage of between 45% to 65% of an individual’s gross income. 

Most policies also impose both waiting periods and maximum periods of coverage during which an ill or injured worker can receive benefits. A waiting period generally compels a worker to forgo reimbursement for days or a few weeks before their reimbursement period kicks in. On the flip side, a coverage cap means a policy will stop paying out if a worker remains unable to return to work for too long. 

Both short-term and long-term disability income insurance policies are available. Short-term policies apply when significant conditions are expected to heal within a matter of weeks or months, although this kind of coverage can extend up to two years under certain policies. By contrast, long-term policies apply when a worker is unable to return to their position for many months, years, or ever. When both short-term and long-term benefits are available to a worker, the long-term coverage usually doesn’t kick in until their short-term coverage expires. 

Why Small Business Owners Can Benefit from Investing in This Coverage

There are two primary reasons why small business owners should strongly consider investing in this type of coverage. The first is personal. In the event a business owner is seriously injured or ill, an inability to replace a significant portion of their wages could be devastating to their family’s budget. This scenario is often especially consequential when a business is so small an owner’s inability to work impacts the ability of the enterprise to remain operational. 

The second is the need of the company’s employees. Most small business owners care deeply about the well-being of their workers. If a small business employer doesn’t offer this type of coverage to its workers, those workers’ financial lives could be dramatically impacted in the event of a health crisis. Additionally, in today’s highly competitive market, offering coverage like this in a prospective employee’s benefits package could make the difference between them deciding to work for a company or take their talent elsewhere. 

Safeguard Your Business Interests with Ferguson Timar

It isn’t always easy to know which kinds of insurance to invest in–and which to forgo–when operating a small business. The client-focused CPAs at Ferguson Timar can craft a coverage strategy that uniquely meets your company’s needs, ensuring you aren’t burdened by coverage obligations extraneous to your circumstances. 

Connect with our team today at (714) 204-0100 to discuss the dynamic ways in which professionals on our team can help your business to foster its financial management priorities and reach its goals. We look forward to speaking with you.