Before the wheels on the bus go wobble wobble wobble

As we age, the wheels on the bus can begin to wobble. If you’re a driver for your business, what happens if one of those wheels falls off, not due to death but because of a disability? The passengers on your bus depend on you for their livelihood. Property and liability insurance is a must for any business yet many owners haven’t yet made the investment in business disability insurance. Yes, there are such products.

Hopefully, you have personal disability insurance coverage; replacement income that buys the household groceries, pays the mortgage and funds retirement. But what about the business you own or for which you work, the enterprise that could be harmed by your inability to produce either part or full-time?

First, let’s consider how overhead expenses get paid when the rainmaker is KO’d. You need to look carefully at your monthly operating costs and consider the range of possibilities, from a short-term partial disability to permanent and total disability. Without substantial retained earnings, your cash flow demands for salaries, benefits, debt service, rent, utilities and taxes can sink your business in a matter of months. Disability overhead expense insurance buys you time to evaluate your options. It also helps preserve the value of your business in the event you have to sell.

What should you ask about?

• How many days of disability have to pass before the benefit payments begin?
• What constitutes partial or total disability?
• How long do the benefits last?
• Can the insurance company cancel or non-renew coverage if you become disabled?
• Are there exclusions or limitations associated with pre-existing conditions?

Next, let’s think about buy-out insurance. Let’s say an owner has a debilitating condition (e.g. multiple sclerosis, ALS, cancer, etc.) that will trigger a pre-arranged written buy-out agreement. Disability buy-out coverage provides the funding to pay the disabled owner for his or her financial interest in the business once total disability occurs.

It’s not out of the question that you or another key player in your organization could be sidelined and seriously jeopardize the company’s ability to operate (e.g. sales, intellectual property, financial management, logistics, etc.). The implications of extended disability are numerous. Lines of credit often are predicated on personal recourse loans. Key customers are loyal to people so losing a relationship can mean losing a customer.

Finally, let’s think about key person disability insurance, coverage for those people who are essential to the organization’s operations and profitability. What makes someone a key person? Think of it as anyone whose disability would fundamentally harm the business:

• An owner whose financial guarantees support a line of credit
• An sales professional whose customer relationships produce a stream of revenue
• The IT director whose technical knowledge is the foundation of your product or service

If disabled, how would your organization move forward or replace those revenue streams for a period of time? We often say that no one is irreplaceable but the question is; How long does it take to find or train that replacement? Key person insurance pays the employer to replace lost profits associated with the covered individual or to train or recruit someone to perform those essential duties.

Getting business disability insurance is akin to putting lock nuts on your bus wheels. It assures a steady ride at a relatively low cost compared with the consequences of losing a wheel at high speed.