Why Small Business Owners Need Disability Insurance

by Thom Tracy

2 min read

Most business owners realize that they couldn’t afford to rebuild a warehouse or replace equipment without insurance. While these are important and expensive assets, the actual risk of loss pales next to the loss of their biggest asset – their ability to earn an income. For most people, the risk of being unable to work and earn an income due to an illness or injury is four times greater than dying before age 65. For business owners, the stakes are even higher considering there is also a business to protect.

Don’t Underestimate the Odds of a Disability

Most Canadians drastically underestimate their chances of becoming disabled. More than two-thirds of Canadian workers think their chances of becoming disabled for three or more months is just 2%, but the actual odds are closer to 25%.

Consider a typical male, age 35, working a typical office job with some outdoor physical responsibilities who leads a healthy lifestyle. He has a 21% chance of becoming disabled for three months or longer during his working career. There is a 38% chance the disability could last five years or longer. The average disability for a person with his profile lasts 82 months. In general, about 30% of all individuals between the ages of 35 and 65 can expect to suffer a disability lasting 90 days, and one in seven can expect their disability to last five years or more.

For Business Owners, Disability Insurance is the Only Solution

Studies have shown that the vast majority of Canadian workers would be unable to support themselves beyond three months. While many business owners have accumulated sufficient capital to cover a temporary loss of income, early-stage business owners are less likely to withstand an earnings loss for an extended period of time. For them, their earning capacity is their biggest asset. Even mid- and late-stage business owners risk a significant depletion of their capital if a disability keeps them out of work for a year or more.

Business Owners Face Bigger Risks

It gets more complicated for business owners, because their businesses rely on them. If the business has employees or partners, the risk of a disability is compounded. A business that can only sustain itself at the hands of one or two key people can be vulnerable to significant financial hardships if they become disabled and unable to contribute as needed. In many cases, if a business owner eventually intends to return to an ongoing business, having business overhead expense protection is one of the only ways to ensure that it happens.

Work with a Disability Insurance Specialist

Disability insurance has become a specialty over the years. Fewer insurance companies offer the coverage, and those that do often employ agents who specialize in the product. Because it is a more complicated product than life insurance, and it protects such a vital part of your financial life, you should seek the guidance of an insurance professional who specializes in disability insurance.

References & Resources

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