If you ask any business person what is their most valuable asset other than their own skills, the answer is always their people. If that person is unable to work for an extended period of time, how would those people still be there when they return?
As with many problems, the answer could be more money.
You might have disability income insurance to cover your own cost of living, but the continuing costs for space, or people are coming out of your savings.
Most disability insurers offer Office Overhead Expense coverage. The idea is if you are disabled for a time, but will return somebody, you must pay to keep the staff and to pay the fixed committments like rent, equipment leases, municipal taxes, telephone, and like. Office Overhead Expense coverage fills the gap.
People usually buy the coverage for 12, 18, or 24 months with a deductible of 30,60, or 90 days. During a disability, you must provide a monthly report indicating the covered expenses incurred. Not onerous. The insurer will reimburse you up to those expenses or to the limit of coverage. Keep in mind they will pay after the end of the first covered month, so if you use a 90 elimination period the first check will likely come around day 140 day after you become disabled. 90 day elimination, 30 days more for the month to unfold, 20 days to prepare the report, submit it and have the insurer review it and pay.
Twenty days could well be optimisitic, so build the lag in to your policy elimination period when you buy the coverage.
Because the coverage will be limited to at most 24 months, the premium will be much lower than would individual disability income coverage.
$20,000 for 24 months after 31 days will have a premium of between $2,500 and $3,000 annually. It drops by 40% or so if you choose a 91 day start.
Some people uses layers to match their perceived need. A layer starting quickly, another one later. It saves some premium but likely is not very smart. If you split the $20,000 to two layers of $10,000 one starting after 31 days and the other after 91 days, the saving would be about $500 per year. The potential cost would be two months of benefit or $20,000 paid during the first 90 days. That would be recovered two years later but there are not many disabilities that keep you out 24 months and eventually have you recover. So there is likely no benefit to the end value.
This coverage does not insure your overhead expenses. This coverage insures your savings remain intact should you expect to return.
The premiums are tax deductible because the benefit is taxable when paid. Offset by the costs for tax purposes, so usually untaxed.
Insurance of any kinds allows you to have options on the future. With this coverage, you could have a serious disability that keeps you out a year or more and still keep your business structure and your savings intact.
You do not have to be a professional to get it. There is coverage for other business owners too.
Worth a look.
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