Buy disability coverage BEFORE starting your business!
I’m not going to try to talk you into it. I’ve heard all the objections and reasons for not buying private disability insurance. None of them any good. If you don’t mind NOT having an income when you’re not able to work, you’re right, you don’t need disability coverage.
If however, having a ready income stream when you can’t work is important to you (heck, maybe it’s even a necessity with that mortgage you have and car payment and let’s not forget the insurance and …), you’d be wise to consider it. Premiums are about 3% of gross income per year.
But this post isn’t about buying disability coverage. It’s about buying it BEFORE you start your own business.
You see, no one thinks about disability insurance before they start their new business. Truth is, it’s next to impossible to get it once you begin self-employment. This is due to the financial underwriting process the company will undertake, where you will have to prove the financial “need” for the coverage by providing copies of your W-2 (or similar documentation) for review.
See the problem already? You won’t be able to prove financial “need” because you probably will not have a salary at opening day- OR you will have a greatly reduced salary at start-up, which will severely limit the amount of coverage you will be able to qualify for.
There’s also the bit about employment history. Disability underwriters want to see 2+ years at a job (or at least job function). You won’t have that at start-up either. It’s not difficult to understand why. Offering a policy to someone in a new business has the very real increased potential for claim written all over it. Not doing well in your new venture? No problem! You’ve got a disability policy that’ll pay!
So, before you leave that cushy job (with group long term disability coverage), budget for a disability policy on yourself while you can qualify for it!