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For small business owners and those with business partners, now may be the time to begin considering coverage options and implementing a comprehensive coverage plan. There are many risks in owning or partnering in a small business, but with the right protection in place, you can mitigate some of those risks.
Whether you’re a sole proprietor or a business partner, it’s important that you have a business continuation plan in place with the proper means of funding it should you or a partner experience a disability that affects your ability to work. That’s where disability insurance comes in.
The Risks are Real
As a small business owner, you probably consider the risks of owning and running a business by yourself or with a partner. What about the likelihood of you or a partner becoming disabled? Did you know that 1 in 4 people will become disabled during their working years? That is just one reason why it is important to have a solid plan in place that will determine how the business moves forward in the event that you or a partner can’t work due to an illness or injury.
When you think about it, would you or your partner have the means necessary for the business to stay afloat if either of you were to become disabled? Most small business owners and partners might not. In fact, more than half of Americans say they cannot even pay an unexpected $400 bill without a loan or selling an asset.
Establishing a Plan
Whether you are a sole proprietor or a business partner, establishing a buy-sell agreement helps you to decide what will happen to your or your partner’s interest in the business should a disability occur. Disability buy-out insurance funds that buy-sell agreement, removing uncertainty from the business and providing reassurances to your creditors, employees, and customers.
Continuing business as usual is the ideal situation after any hardship or bump in the road. That is why disability buy-out insurance is crucial. Disability buy-out coverage protects you from having to empty your savings or investment accounts, or affecting your credit, in order to buy out a disabled business partner. By paying monthly premiums, you have the luxury of knowing that if and when disability happens, the business can continue to thrive.
When looking for a provider, look for a policy with strong features:
- A business valuation formula that is part of the policy. This makes it easier for you and your partners to understand how the business is valued at the time of policy purchase as well as at the time of a claim.
- Flexibility to have the policy owned by the business, a trust, or the partners.
- Funding options to complement the provisions of your buy-sell agreement (lump sum, monthly installments, or a combination).
- Occupational rehabilitation and modification and access benefits with an agreed-upon plan to help owners return to their business.
- Transfer of Coverage Option that preserves medical insurability in the event an owner leaves one business to join another.
- A choice of elimination periods for when benefits begin — typically 12, 18, or 24 months.
- Waives premiums during total disability — and refunds premiums already paid that apply to the period of disability.
- Enables owners to convert business coverage to an individual disability income policy up to age 55, subject to eligibility requirements.
If you’re a sole proprietor, it’s especially important to look for a policy that provides funding for a one-way buy-sell agreement, which helps safeguard the sole proprietor’s future plans.
Next Steps
Protecting yourself and your business from risks like the possibility of a disability is often overlooked. However, coverage such as a disability buy-out plan can provide you with peace-of-mind, knowing that if a disability were to happen, your business would be able to continue. And, during these uncertain times, it is important to be certain about the future of your business.
If you need assistance finding the best coverage options, consult a financial professional who can help you identify your goals and the steps you can take to better protect yourself and your business.
Alexandra Ginieres leads the Disability Marketing Team, Individual Markets at The Guardian Life Insurance Company of America®. She has been with Guardian since 2012 and in the financial services industry for over 20 years. Her team produces educational tools and resources focused on strategies to help individuals, families, and small business owners find the right income protection solutions for their needs.
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice. Links to external sites are provided for your convenience in locating related information and services. Guardian, its subsidiaries, agents and employees expressly disclaim any responsibility for and do not maintain, control, recommend, or endorse third-party sites, organizations, products, or services and make no representation as to the completeness, suitability, or quality thereof. Individual disability income products underwritten and issued by Berkshire Life Insurance Company of America (BLICOA), Pittsfield, MA or provided by Guardian. BLICOA is a wholly owned stock subsidiary of and administrator for the Guardian Life Insurance Company of America (Guardian), New York, NY. Product provisions and availability may vary by state.
Individual disability insurance policy forms 3100, 3200, and 18DB are underwritten and issued by Berkshire Life Insurance Company of America (BLICOA), Pittsfield, MA. BLICOA is a wholly owned stock subsidiary of The Guardian Life Insurance Company of America (Guardian), New York, NY. Product provisions and availability may vary by state. In New York: These policies provide disability insurance only. They do not provide basic hospital, basic medical or major medical insurance as defined by the New York State Insurance Department. For policy forms 3100, 3200, and 18DB, the expected benefit ratio is 55%. The expected benefit ratio is the portion of future premiums that the company expects to return as benefits, when averaged over all people with these policy forms.
Optional riders are available for an additional premium.
GUARDIAN® and the Guardian Logo® are registered trademarks of The Guardian Life Insurance Company of America. ©Copyright 2021 The Guardian Life Insurance Company of America, New York, N.Y.
2021-116592 (Exp. 03/23)
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