Business Disability Insurance

Instructor: Brianna Whiting

Brianna has a masters of education in educational leadership, a DBA business management, and a BS in animal science.

Insurance is a great way to help a company out in the case of an unexpected event. In this lesson, we will learn about some of the different types of insurances policies a company can take advantage of if there is a sickness or injury.

Looking at Insurance

While it would be great if employees or owners never got sick or hurt, unfortunately, bad things happen. But what does a business do when an employee or owner gets sick or hurt and can no longer work? How will the business continue to meet all of their financial obligations? We go to work to earn money, but when we are no longer able to go to work, we need a backup plan. That is where insurance comes in. Business disability insurance replaces income when an employee or an owner is no longer able to work because of sickness, or they are hurt. In this lesson, we will learn about the different types of business disability insurance and the coverage each provides.

Overhead Expense Insurance

One insurance option is overhead expense insurance, which essentially reimburses the company for any operating expenses when the owner is not able to work because they are hurt or sick. Because many businesses cannot continue to operate when the owner becomes disabled, overhead expense insurance helps cover operating expenses. Some types of operating expenses include payroll, rent, utilities, and taxes to name a few.

For example, if the owner of ABC Company gets hurt in a car accident and cannot continue to work for at least six months, he might not be able to pay all of his business expenses. In order to continue to pay his employees and the rent on his building, he will need to have overhead expense insurance. This will cover his expenses while he is gone.

Disability Buy-Out

Another type of insurance is disability buy-out, which allows others to buy out the portion that an owner owns if they become totally disabled. It is essentially a buy and sell agreement between the owners of a business. The owners agree to buy the permanently disabled owners interest in the business at a price decided upon before the disability occurs. The other owners will buy the interest with the disability buy-out insurance so that they can continue to still operate the business.

An example might be if three individuals own ABC Company and one of them slips on ice and becomes paralyzed, that owner will not be able to continue working as he is now permanently disabled. Before the accident occurred, the owners decided to get disability buy-out insurance, which allowed the other two owners to buy the disabled owners interest and continue to operate ABC Company.

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