January/February 2007: by Steven Krueger

Have you insured your best asset? Properly?

As business owners, we are able to overcome many obstacles related to business risk. We accomplish great things on a regular basis. We all want to continue to do so into the future. However, one limiting factor that we don't often think about is our own health and our own physical condition and how this affects our ability to run our business. Accidents and diseases can and do happen, and they can stop our earnings for periods of time. Without a strategy to prepare for these negative possibilities, these real-life occurrences can cripple our business and end our ability to earn a living - our greatest asset.

That's where disability insurance can help to mitigate risk and present positive outcomes to a negative situation.

If you are age 40, there is a 41 per cent chance that you will be disabled for at least 90 days prior to age 65. The average expected length of disability is four years at age 40 and grows to almost five years at age 55 for disability lasting at least 90 days. Are you prepared financially and do you have key people to take over your business if this should take place? The answer to this, surprisingly, is no for a lot of business owners.

What's more surprising is how owners and most people spend money on insurance. We make sure our vehicles are insured against accidents and theft, we insure our home and business against fires and damage by nature and we make sure we cover ourselves in case of untimely death so our loved ones will not bear any hardship. Compare the odds of being disabled with the other insurable catastrophes.

There is a 1 in 274 chance a fire will destroy your home, 1 in 150 chance you will have a serious car accident, a 1 in 140 chance you will die, but there is a 1 in 13 chance you will be disabled for at least 30 days. You have to ask yourself if your business is able to carry on without you in this scenario and what steps you can take now to plan for that possibility.

There is a product designed to mitigate this business risk called long-term disability insurance. The design is different from other types of insurance. Under life insurance and critical illness insurance, we understand if we pay a premium and if a condition occurs as stated under the contract we will receive a lump sum of money.

However, with disability insurance it's not a premium for a lump sum. What is involved are benefit periods based upon definitions of occupations so that you can determine your benefits into the future based on what you pay now. Ideally, a properly designed disability program will pay you a monthly income based on your inability to perform your "own occupation" for as long as needed until you reach 65 years of age. It should provide 24/7 coverage for all accidents and all sicknesses and should include a cost of living adjustment.

Generally, there are two ways to cover long-term disability,
through group insurance or through individual policies. Although the group insurance is usually cheaper, doesn't require a medical, and may extend over more occupations, the business owner may have a hard time collecting long-term group benefits because of group offsets and poor definitions.

The better solution, most of the time, is for the business owner to have his or her own individual long-term disability policy. Individual disability insurance allows for better definitions of disability, guaranteed premiums and coverage, greater flexibility after issue portability, inflation adjustments and higher benefit potential compared to group plans.

The most important benefits individual disability insurance includes for a business owner are:

1. Own occupation definition
2. Cost of living rider
3. Non-cancelable
4. Guaranteed level price

There are many other options that allow a contract to be customized to fit individual needs.

A minimum coverage through a group plan may seem to be beneficial in the short term, however, individual long-term disability insurance plans are designed to extend benefits farther into the future and may provide the security that you are looking for. It makes sense to compare the two different ways and, as always, to rely on professional advice when you need it.

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About the author
Steven Krueger, CFP, is a Financial Planning Advisor with Assante Financial Management Ltd. He can be reached at 1-877-837-3377 or 306-682-2240, or click to email Steven Krueger.

Disclaimer
Please contact a professional advisor to discuss your particular circumstances prior to acting on the information above. The opinions expressed are those of the author and not necessarily those of Assante Financial Management Ltd.

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