Disability insurance can help provide financial security for both you as the business owners and the company in the event of a disability. Business owners will be able to maintain the business or transfer ownership of the company during an extended period of disability. Disability insurance can also provide benefits should principals become too sick or injured to work. These benefits can help to keep the business running by covering overhead expenses, or by providing multiple owners with a buy-out option.
Business Overhead Expense Insurance
Business overhead expense insurance provides funds to reimburse business owners for fixed overhead expenses, such as employee salaries, rent, leases, and utilities. Business overhead expense insurance premiums are generally tax deductible as a business expense and customizable to the specific needs of the company, at an additional cost.
Disability Buy-Sell Insurance
Your company may have life insurance to help protect the organization against adverse financial consequences that may result from a partner’s death. However, you shouldn’t overlook, and fail to plan for, a partner’s disability. A disability could make continued ownership of a partnership in a business all but impossible.
Disability Buy-Sell insurance is designed for small business owners to provide funds for the purchase of the insured’s share of ownership in the business in the event he or she is totally disabled. Policies are primarily designed for small partnerships and professional corporations. The owner may be the business, a trust, or each owner may own a policy on the other owners. The existence of a formal Buy-Sell agreement is required.
The concept of disability as it relates to a partner’s active participation in a business is often far more difficult to define and describe than most other buy-sell triggering events. For purposes of the Buy-Sell agreement, a disability Buy-Sell policy can provide, not only the funding for a partner buy-out, but the definition of total disability. This allows the insurance carrier, acting as an objective third party, to determine if a disability has occurred.
Disability insurance policies have exclusions and limitations.