Yet disabling illnesses or injuries do occur, with as much as 12 percent of the population restricted from participating in normal activities due to a chronic condition*. A recent study by the Centers for Disease Control shows that more than 11 million working-age adults are unable to work due to health problems. What’s more, the risk of facing work limitations due to disability triples for baby boomers age 45 to 64.  A number of these disabilities involve individuals who also happen to own a business.

Protecting yourself against a disability is critical to avoid possibly jeopardizing your financial security by missing work for an extended period of time. The need is even more critical for business owners who not only risk their personal financial security, but the ability of their company to continue operating. A missing business owner can have a drastic impact on the viability of the firm. The smaller the operation, the more true this is, but depending on the owner’s role, this can even be the case in a business with a relatively large number of employees.

Think of what could happen

If as a business owner, your job has a physical component that could lead to a disabling injury, some form of disability insurance seems like an obvious consideration. At the same time, many who run their business from a desk may think their risk of a disabling injury is limited. Yet injuries can – and have – happened in a variety of occupational settings. Some of the most common injuries occur from car accidents, athletic activities or household projects. Individuals can, without notice, be stricken with a medical illness or disease that will knock them out of work for an extended period of time. It is important to be protected from financial fallout from unforeseen events, especially as it may impact your business.

Have a succession plan in place

One important consideration is to determine who will be ready to replace you if you are “out of commission” for any length of time. You need to have people capable of keeping the company on track in your absence. This could be one person who is ready to completely take over your role while you are out, or a combination of people, each focused on particular aspects of the job. Proper planning is important; you should spend time now assessing your organization and its people and develop a succession strategy.

If you’re a baby boomer and run a business on your own, with no employees, you must determine whether any options exist to keep cash flow going in your absence. In this case, you may turn to independent contractors you have worked with in the past to pick up some of your work. Alternatively, your company may be forced to shut down for a period of time until you are in a position to return to the job.

Financial protection options

Along with purchasing a disability policy to protect yourself and your company in the event of a disabling illness or injury, you should also consider adding a policy to help with business overhead expenses. This type of coverage is designed to fill the financial gaps in your company’s operations caused by your absence. The money received under such a policy can be used to fund the cost of having a replacement to carry out your regular duties. It can also help cover other regular expenses of the business, including insurance, rental and lease payments, utilities, contract services, office supplies, interest on business loans, taxes and other costs required to keep your business functioning.
 
Unlike a personal disability policy, which can pay a benefit for as long as is required (usually up to age 65), business overhead expense protection typically continues for only a limited time. If, after one or two years, the owner is not able to return to work, it is generally assumed that the business will be closed or sold to a new owner.

Just as with personal disability coverage, keep in mind that there is typically a waiting period of three-to-six months before you can begin collecting benefits on a business overhead expense policy. Therefore, your company should also have a reasonable cash reserve on hand to help pay for ongoing operations in your absence before policy benefits become available. This is another important aspect of business planning that can affect your company’s long-term continuity.
A financial advisor may help you develop a plan for your business, including a succession plan and insurance options to protect the longevity of your business.

*Source: Centers for Disease Control, Summary National Health Statistics for the U.S. Population: National Health Interview Survey 2006

This communication is published in the United States and this advisor is licensed only in the states of MI, OH, MD, FL, NC, CA and VA. This column is provided for informational purposes only. The information is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor. Neither Ameriprise Financial nor its advisors or representatives provide tax or legal advice. The views expressed may not be suitable for every situation. Consult with qualified tax and legal advisors concerning your own situation.

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