A Prescription for Disability


Gregory S. DuPont Dec. 19, 2019

When it comes to business owners and the impact a disability can have on their business, there are many issues to address. Consider the following hypothetical case.

Robert Wilson and his partners Steve Barton and Emily Trask own Maple Tree, Inc., a small maple syrup production company in Burlington, Vermont.

Robert was recently hospitalized for a back problem and missed six months of work. During his recovery, he started thinking about the long term and contemplating how to protect his interests and income if such an unexpected situation were to happen again. If you are a business owner, like Robert, the answer may lie in a disability income insurance policy. Here are some points to consider:

Let’s start with personal coverage. . .you basically have two options. First, you can purchase coverage through an individual insurance policy. Second, you can purchase group coverage through your business, professional organization, or association. A wise first step is to analyze each prospective policy’s insuring clause, renewability, and cancellation provisions. In addition, you will need to determine if the policy benefits are adequate for your situation.

Since you own your own business, it is unrealistic to assume it will be able to carry you through an extended period of disability. While you may be able to withdraw operating capital from the business in the form of dividends, or continue your salary if there is a written agreement already in place, every dollar you withdraw for personal expenses can seriously harm the business’s cash flow— which is the life blood of your business survival.

Of equal importance is to decide what to do with your business if your disability becomes permanent. This issue is all the more difficult when you, like Robert, have co-owners. While they may be willing to continue your salary on a short-term basis, they are unlikely to do so indefinitely.

As in Robert’s case, the key to survival of your business lies in designing a business disability protection plan to cover both problems. If, unlike Robert, you are a sole proprietor, consider whether a business overhead expense policy is appropriate for your situation. The business overhead plan pays for a variety of business expenses, typically for a period of up to two years, once you become disabled under the terms of the policy. The business overhead policy helps ensure bills will continue to be paid when you are no longer able to work.

The second component of the well-designed business protection plan is a disability buy-out policy. If it became apparent that Robert could not return to work, the proceeds from a disability buy-out policy would be used to purchase his interest. The bottom line: The disability buy-out and the overhead expense policy are two essential tools you can use as a “prescription” against disability.