Understanding The Basics Of Disability Insurance For Small Business Owners

Owning and operating a small business comes with a plethora of responsibilities and considerations. Beyond profit margins and customer acquisition, there’s the ever-important area of risk management to consider. One area that often gets overlooked, particularly by new and emerging entrepreneurs, is the necessity of disability insurance. Many small business owners are so invested in their businesses that they forget to protect themselves and their means of income.

Disability insurance ensures that in case you, the business owner, suffer a disability that prevents you from working, you will still receive a percentage of your income. This is vital for those whose livelihoods depend solely on their businesses. This post aims to shed light on the basics of disability insurance for small business owners.

Why Disability Insurance Is Vital

disable man on wheelchair
disable man on wheelchair

If you’ve ever been through a disability insurance company interview, you might have heard them harp on about the importance of having this coverage. But why is it so crucial? Imagine you suffer an injury or illness that keeps you out of work for months.

Without disability insurance, your personal and business expenses can become overwhelming. When the breadwinner is incapacitated, it can jeopardize the future of the entire business. By having a policy in place, you give yourself and your business a safety net, ensuring continued income even during downtimes.

Short-Term Vs. Long-Term Disability Insurance

  • Short-Term Disability Insurance: This type of insurance provides benefits for a short period, typically a few months to a year. It can cover situations like recovering from a surgery or a temporary medical condition. It’s beneficial for small business owners who might not have significant savings to cover immediate expenses.
  • Long-Term Disability Insurance: This offers protection for extended periods, often ranging from several years to retirement age. It’s designed for severe illnesses or injuries that can keep a business owner out of work for an extended period.

Own Occupation Vs. Any Occupation

It’s essential to understand these terms when deciding on a policy. ‘Own occupation’ covers you if you can’t perform the specific duties of your own profession.

Conversely, ‘any occupation’ only covers you if you can’t work in any profession reasonably suited to your skills and training. For a specialized professional, ‘own occupation’ might be a better fit, as it offers broader protection.

Cost Factors

The cost of disability insurance varies depending on several factors:

  • Age: Older individuals typically pay more.
  • Occupation: High-risk jobs might have higher premiums.
  • Health: Your overall health can influence rates.
  • Coverage Amount and Duration: More coverage or extended periods will cost more.
  • Elimination Period: This is the waiting period before benefits kick in. Longer elimination periods mean lower premiums.

Benefit Amount

The benefit amount is typically a percentage of your income, often ranging from 60-80%. It’s crucial to find a balance that ensures you can maintain your lifestyle and meet business and personal expenses if you become disabled. Ensure you account for all income sources and potential growth when determining the amount.

Riders And Add-Ons

Many insurance policies offer additional riders that provide extra protection. Common riders include:

  • Cost-of-living adjustment (COLA): This adjusts your benefits to account for inflation.
  • Future purchase option: Allows you to buy more coverage later without a medical exam.
  • Residual disability rider: Provides benefits if you can work part-time but not full-time due to disability.

These can add to the policy’s cost but can provide significant additional value.

Review And Update Regularly

As your business grows and changes, your disability insurance needs may evolve. It’s essential to review and update your policy periodically, especially after major life or business events. This ensures you always have adequate protection.


In the world of business, it’s always better to be prepared than to be caught off-guard. While many entrepreneurs focus on insuring their businesses, few consider the impact of potential disabilities on their personal lives and business operations.

Disability insurance for small business owners is not just an optional extra; it’s a crucial component of a comprehensive business strategy. By understanding its basics and keeping your coverage updated, you can ensure a secure financial future for both you and your business.