As a business owner, you need to protect your ability to earn income for the business. Business owners often purchase disability insurance for the following reasons:
Buy/Sell Agreement: a buy/sell agreement is typically between two partners who want to ensure that if either of them become disabled there is a plan in place to buy that individual out. Funding the buy/sell agreement with disability insurance would look something like this (as an example):
If a partner becomes disabled and is unable to work for 2 years, the remaining partner(s) will buyout the disabled partner’s shares with the disability proceeds.
This would give much needed cash flow to the disabled partner and allow the working partner(s) to proceed without the financial burden of the disabled partner going forward.
Key Person: this type of disability policy would be coverage on a “key” employee who is essential to the financial well-being of the business. For example, a restaurant owner may purchase a key person disability policy on the head chef, because the business would suffer if that chef became disabled/unable to work. The disability proceeds would flow back into the business to help bridge the gap financially while finding a new chef and/or training one.
Business Overhead Expense: this type of disability policy is designed to help pay for a disabled partner’s share of the expenses while they are off work. For example, if there are two owners and each’s share of the expenses for the business is around $5,000, disability insurance can be purchased to cover both owners for that amount. If one owner becomes disabled, the business receives the amount of coverage monthly to cover those expenses. Eligible expenses are wide reaching: employee’s salaries, rent, utilities, equipment expenses, etc.
Individual Income Replacement for Business Owner: many self-employed individuals who are the sole income earner for their business are interested in purchasing disability insurance to cover themselves. There are a few requirements to be eligible for this as a sole business owner, but your Orr Insurance & Investment Broker will help guide you through that process.
There are many different “add-ons” that can be included in some disability policies:
Cost of Living Adjustment
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