Great-West Life statistics show, on average, one in three people will be disabled for 90 days or longer at least once before the age of 65 and the average length of a disability over 90 days is 2.9 years.
With statistics like those, and a rising incidence of diseases like dementia and other disabling events, a business owner must ask, If I was unable to work, what would happen to my family and my business?
Its a tough question, but too often there is a rush to find an easy answer, such as tapping into existing savings or liquidating assets. Unfortunately, that is a very short-term solution. Actuaries estimate that if you saved five per cent of your income for 10 years, you would run out of money after only six months of total disability. And what about your business? Your ability to contribute ceases while business commitments continue.
The simplest way to safeguard your personal and business financial futures is to incorporate appropriate and adequate insurance coverage into your planning.
It is a risk management tool invaluable to ensuring long-term financial stability. In addition to disability insurance, other types of coverage for small business owners and partners include life, partnership or buy-sell, critical illness, and key person.
Life insurance protects the business owners family in the event of death, while disability and critical illness insurance replaces income if an accident or medical condition prevents a person from earning it in their occupation.
Key person insurance protects the business in the event that important expertise or knowledge is lost through death or disability. The business purchases a policy on the life of the person(s) most important to the company.
Partnership insurance or buy/sell agreements are important for business succession. They ensure the estate of the deceased partner realizes the full value of the business interest.
Insurance appears to be a basic concept, but its not that simple. The protections required by a two-partner software business are going to be different than those for a three-partner construction business, and determining any companys insurance needs are complicated by the fact that its entirely unpredictable when the insurance is needed.
Insurance can provide business owners with a means of protecting profitability during tough times, and some of the deductibles can even be considered business expenses, but there are many questions that require clear and informed answers. It is advisable to discuss your needs with a professional.
Kim Inglis, CIM, PFP, FCSI, AIFP is an investment advisor and portfolio manager with Canaccord Wealth Management.
