This is the last article in a series on business planning. In the previous article, we discussed the uses for insurance in business planning.

This article will focus on the use of disability insurance in business planning. This is a follow-up on an article I wrote in early 2013, which also addressed Social Security disability insurance and worker’s compensation.

Many business owners do not have a plan in place to cover their income or business overhead expenses should they become disabled. If you are a business owner, you have to ask yourself, what would happen to my business and my family if I couldn’t work for six months or more? Many of us don’t realize that the likelihood of a premature disability is much higher than the likelihood of premature death.

Worse yet, as we grow older the average duration of a disability gets longer. So, disability insurance can be a very important tool to offset this risk. There are different types of policies to include:

• Disability insurance: You can have short-term disability insurance and/or long-term disability insurance. Typically, insurance provides about 60 percent of your normal income. This type of insurance should be strongly considered by sole proprietors whose family income is dependent on them working.

• Business overhead expense insurance: This type of policy pays the business expenses to include utilities, loan payments, rent, select employee salaries, etc., in case the owner was unable to work and generate income.

• Disability buyout insurance: This insurance would be part of a buy-sell arrangement and is designed to provide funds to buy out a partner if a partner becomes disabled and unable to continue functioning of the business. This is very important in a professional practice.

• Key employee disability insurance: If you have a key employee who is closely tied to a major center of profit, not only should you consider key employee life insurance but also key employee disability insurance.

As in any insurance product, the devil is in the details. Key considerations to look for in a disability insurance policy include:

• Definition of disability: Some policies require an individual to be totally disabled to pay benefits, like Social Security. Doctors and other highly-skilled professionals typically will purchase a policy with an own occupation definition. That means if a highly-skilled professional cannot work in his specific profession, the disability policy pays benefits. Another definition is any occupation. That means so long as you can work, you don’t collect disability. Some policies will have own occupation for the first two years and then any occupation thereafter.  Obviously, the own occupation definition will drive a higher premium.

• Partial or residual benefits: A good policy should pay partial or residual benefits in case an individual is not able to go back to work on a full-time basis or unable to earn the same level of income they earned before the disability.

• Elimination period: This is the waiting period before benefits will be paid. This can range anywhere from 30-360 days. The longer the elimination period, the lower the policy premiums will be.

• Benefit period: This can range from as short as 24 months to lifetime benefits.

On a closing note, awhile back I said that if this bull market were to continue its run, corporate earnings would have to improve. This is the start of second quarter earnings reports.

Keep a close eye on forecasted earnings. I believe it will give us a strong clue on the market’s future direction.

Larry Martin is an investment advisor representative offering advisory services through Mader & Shannon Wealth Management, Inc., 4505 Madison Ave., Kansas City, MO., 64111. He can be reached at or (913) 651-4321.