Disability insurance can help you protect your income as a small-business owner if you’re hurt or get sick and can’t work. With the right disability insurance policy, you can collect benefits up to retirement age, even if you’re never able to work again.
How disability insurance for small-business owners works
Disability insurance replaces your income while you’re hurt or sick and can’t run your small business. You can use your disability insurance while you’re not working to keep up with your expenses, like your mortgage or rent, childcare, and groceries.
You can’t use disability insurance to cover a disability caused by a pre-existing condition, but disability insurance does cover most injuries and illnesses, including chronic pain, the loss of a limb, broken bones, complications from a pregnancy or childbirth, cancer, and more.
Your disability benefits depend on whether you get a short-term or long-term policy. Short-term disability insurance covers you for three to six months, while long-term disability insurance covers you for a year or longer, even up to retirement age.
What kind of disability insurance do small-business owners need?
The best type of disability insurance for small-business owners is own-occupation long-term disability insurance.
You can use your own-occupation disability insurance to replace your income when you can’t operate your small business because of a disability, even if you can work another job.
You may also want to consider partial disability insurance. Partial disability insurance pays benefits when your disability affects the work you usually do as a small-business owner, even if you’re not fully disabled.
Disability insurance riders for small-business owners
Here are some useful disability insurance riders, or extra coverage options, that might be worth having to protect the income you get from your small business.
Cost of living adjustment (COLA): Increases your monthly benefit to keep up with inflation.
Future increase rider: Lets you add more coverage if your income increases without having to go through another medical exam.
Non-cancelable/guaranteed premiums: Keeps your policy active and your rates the same long as you make payments on time.
Retirement protection: Replaces the retirement contributions you made while you were working.
Student loan rider: Makes payments towards your student loans while you can’t work.
Disability insurance vs. business overhead expense insurance
Disability insurance for small-business owners is different from business overhead expense insurance (BOE). While disability insurance covers your personal expenses, business overhead expense insurance covers your business’s expenses for one to two years, including:
Rent and utilities
Payroll and property taxes
Employee benefits and workers compensation
You can save money by getting your BOE and long-term disability insurance policies from the same insurance company.
Do you need to get disability insurance for your employees?
You may need to get group disability insurance for the employees of your small business. California, Hawaii, New Jersey, New York, and Rhode Island require most small businesses to provide short-term disability insurance to their employees.
States allow you to use some money from employees’ wages to offset the cost of providing disability insurance, so you don’t have to cover all costs yourself.
Is disability insurance a small business expense?
Unlike personal disability insurance benefits, the cost of providing your small business’s employees with group disability insurance might be tax deductible as a business expense.
That said, it’s best to speak with a tax professional when you’re setting up your business to be sure.
When should small-business owners get disability insurance?
It’s easier to get disability insurance before you start a small business, since it can take a while to draw an income from a business and you have to verify your income before you can get a policy.
You can still get disability insurance after starting a small business, but it might take longer. In this case, disability insurance companies may ask for signed contracts instead of tax returns to prove future income.
Cost of disability insurance for small-business owners
The cost of disability insurance for small business owners is usually 1% to 3% of your income. Your premiums also depend on your benefit amount, any extra riders you add to your policy, and your disability insurance policy’s waiting period (the time between your disability and when your benefits start).
Our disability calculator can help you find affordable coverage so that the cost of your disability insurance doesn’t take away too much from your small business’s revenue.
How to get small business disability insurance
You can get disability insurance for small-business owners by following these steps: