Disability: Common Questions and Answers

This article was co-authored by <a href="http://biznik.com/members/sarah-bitter">Sarah Bitter</a> and <a href="http://biznik.com/members/chris-lavin">Chris Lavin.</a> Disability is among the largest risks business owners face; on average one in three people will be disabled for more than 90 days before age 65. To provide you with information about how to protect yourself, we answer common questions about disability and also include links to tools for analyzing your disability needs. I haven’t missed a day of work in years. Why is purchasing disability insurance necessary? As stated in our first <a href="http://biznik.com/learn/articles/insurance/insurance-basics-for-business-owners-part-1">article</a> and in other <a href="http://biznik.com/learn/articles/insurance/home-sweet-home-insurance-strategies-for-homebased-businesses">articles</a>, disability is the largest risk to any small business owner. In fact, Americans between the ages of 35 and 65 have a one-in-three chance of becoming disabled for more than ninety days in their lifetime. To put this is perspective, a thirty-five year old is more likely to become seriously disabled before age sixty-five than they are likely to die. The question to ask yourself when determining if you need disability is: how would I cope without any income for an extended period of time? <a href="http://www.halfapaycheck.com/index.php">If you are curious how long you could survive on savings click here </a> If I get hurt while I’m working I have insurance, right? If you are an employee, you probably do; if you are not an employee, probably not. Most employees are covered while they work by what is called Labor and Industry insurance (commonly termed L&I). L&I is a type of on-the-job disability insurance coverage which companies are required to purchase for their employees. Self-employed people, as well as the owners of businesses who are not employees, are not covered by L&I. If self-employed workers or small business owners decide to insure their income, they must purchase their own disability insurance. Why doesn’t my disability insure 100% of my business income? Typically, for a business owner or a self-employed person, a regular disability policy will insure only your net income. That is, it will insure your income after deductions for business expenses. As many business owners perceive, this is not enough to cover both their income and their overhead. It is possible to insure your business overhead and for many business owners this is a good idea. Let’s consider the case of a salon owner whose business generates $ 100,000 in sales and who wishes to insure as much of that $100,000 gross income as possible. Her overhead is approximately $35,000. A regular disability policy would start considering payment on $65,000. An “overhead” policy would consider payment on the $35,000 in business expenses. If this business owner wants to insure both her net income and business overhead she needs to put two separate policies in place. This is very important for business owners who have employees and/or inventory and would like their businesses to survive their disability. I became disabled and my disability policy didn’t pay…why? The most common explanation is that your disability policy defines disability as: something that prevents you from performing the duties of any occupation, not just your own occupation. We recently met a massage therapist whose disability claim had been denied for what she thought was no good reason. However, when she purchased disability, she had selected a policy that stated if she were unable to work in any occupation the policy would pay. Unfortunately, although her injury prevented her from working as a massage therapist it did not prevent her from working as, for example, a telemarketer; therefore, her policy did not pay, nor did it have to. When purchasing a disability policy the definition of disability is the most important consideration. Most of us, especially those of us who own our own businesses, would consider ourselves disabled if we could not continue in our current occupation due to disability. Should I pay for my disability policy with pre or post-tax dollars? Although paying anything pre-tax is always appealing, it is usually not advisable to use pre-tax money to pay for disability because you would be taxed on the benefits. In other words, you would have an even smaller paycheck when you needed it most. What are the advantages or disadvantages to group disability? The big advantage is easier underwriting – generally speaking it is based on age and income of population. That is, how old the people in your company are and how much money they make; however, group disability does require having a certain minimum number of employees and a certain level of participation. How long does it take to get a disability policy? That depends. It will take some time to get a disability policy issued. The first step is meeting an agent and selecting a policy that meets you and your business’ needs. Then, the application itself will require health and income verification. A three- to six-week timeline is typical. Can everyone get a disability policy? No. Insurance is all about risk. First, there are certain industries that insurance companies know to be at high risk of disability. Secondly, insurers consider your health and medical history when you apply for individual coverage. Finally, insurers consider your income history. People starting in industries with highly variable incomes (real estate for example) may find it challenging or, impossible to get disability for the first couple of years. An MD entering private practice would not have the same problem. DISCLAIMER: The information provided in this article is for information purposes only. If you have insurance questions, please seek the advice of a licensed insurance professional. 2008-04-24T17:30:52Z

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disability-common-questions-and-answers

2008-04-27T01:27:35Z

A disability could destroy your business and your family’s financial situation if you do not have disability insurance. A long-term business or financial plan should insure against the possibility of disability.

Disability: Common Questions and Answers

2009-02-24T09:44:08Z