A Disability can ruin a business and here the types of Disability insurance business owners should consider.

Disability coverage may be the least understood and most neglected area of business planning. Most people know that it is important to prepare for a possible death, but rarely do they imagine that a partner or key employees will become disabled. Yet disability can be a lot more damaging to a business than death and is much more likely to happen.

Depending on when they were born, workers are about four times as likely to become disabled, as they are to die before reaching normal retirement age, according to Social Security Administration projections.

Say you and I are business partners, and one day I go skiing and fly right off a cliff. Suddenly, I am seriously injured or even permanently disabled. I am not adequately covered for disability insurance, and neither is the business. You break the news that you cannot afford to keep me on. I still own shares but you cannot afford to buy me out. I’m out of luck, but so are you. All you can do is hope that when the time comes to make critical business decisions, I vote your way. That is a situation business owners want to avoid, yet many are unaware of the insurance options available to them.

There are two types of disability coverage that all business owners should have:

Key-person disability insurance, which pays the business to replace the individual who is unable to work and personal disability insurance, which provides an income benefit to the disabled partner/owner.

There are two other types of disability insurance that all business should consider.

The first is buyout disability insurance, which pays the disabled partner/owner for his or her shares in the business, returning them to the company. (Owners with sole proprietorship don’t need this type of insurance.)

The second is disability insurance for overhead. This pays for operational expenses or salaries, depending on the business. It is especially useful for the owners of startup companies, who might otherwise have trouble paying the rent, keeping the lights on or retaining staff when a key team member cannot work.

For a young and vibrant business owner, it is hard to imagine that a disability could ruin their business. It is also uncomfortable to think about disability (It will never happen to me). However once business owners understand how badly a disability can harm a company, they understand why having the proper coverage is so important.

Glenn Stewart is an independent financial/insurance adviser. He can be reached at glenn@cuttherisk.com or 1.888.256.8685.