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Survey after survey says business owners get more satisfaction from work than employed people do. But there's a yin for every yang, so entrepreneurs make up for it by needing more types of insurance than anyone else.
Life insurance is essential, of course. But business owners need to think about less dire emergencies, too. Entrepreneurs rarely enjoy the supplemental health benefits that are lavished on their corporate peers. That leaves them solely responsible for countering events — like long illnesses — that could interfere with them earning an income.
"The reality is that people tend not to die on the job, but they do get ill," says Malcolm Silver, a Toronto insurance agent. The solution? Using disability insurance and, possibly, its newer cousin, critical-illness coverage, to ensure that your family and your business don't suffer if your health does.
Franco Caligiuri, the president of Caligiuri Financial Group in Vancouver, believes many entrepreneurs risk their futures by neglecting disability insurance, which can provide them with a monthly income replacement if illness or accident leaves them unable to work. You should buy sufficient coverage to replace your after-tax income. Standard policies cover you until you are deemed fit to work again or for a specified period. If you're in a particularly demanding field, you can pay extra to receive payouts for as long as you are deemed to be disabled in your own occupation.
In today's high-pressure economy, disability insurance offers a bonus: protection against burnout. If your physician says you're under stress and better off not working for a while, your disability policy may cover the medical leave you need, something that most entrepreneurs would otherwise have to go forego.
A healthy, non-smoking 30-year-old male business owner seeking basic coverage worth $40,000 a year would pay $75 a month for disability insurance, says Caligiuri. That's based on receiving his first payment within 31 days of diagnosis. If he's willing to wait two months, he'd pay just $51. But age hurts: a 40-year-old with a 31-day waiting period would pay $110 a month; a 50-year-old, $169.
Caligiuri says entrepreneurs often neglect disability insurance because of their "Superman complex" that makes them feel invulnerable. "We don't think we're ever going to die, we don't think we're going to get sick." Get over it, he warns. "You are the greatest asset your business has. You have to protect your ability to produce income."
For those who want more protection, the new kid on the block is critical-illness (CI) insurance, which pays you a lump sum if you suffer any of 20-odd qualifying ailments, the most common being heart attack, stroke and cancer. CI won't do anything to help you with a broken leg; it's intended to help you counter life-threatening problems.
CI insurance is barely 10 years old in Canada. It was developed in 1983 by South African physician Marius Barnard (who in 1967 assisted his brother Christiaan with the first heart transplant). Barnard saw more patients living long enough to suffer major illnesses. "They didn't lose their lives," he observed. "They lost their life savings." He developed CI to help patients preserve their financial independence.
According to Silver, most entrepreneurs insure themselves for between $100,000 and $500,000, a payout you can use any way you wish: to buy supplemental medical care, pay for costly drugs, or to fund living and business expenses while recovering. "If you're sick or feeling weak, you can use it to work less. Or you can go to the Mayo Clinic and get the best private care." A healthy, non-smoking 42-year-old Canadian male would pay $1,500 a year for $100,000 worth of CI coverage, Silver estimates.
David Trahair, a Toronto accountant, isn't so bullish on CI. "If you have more money than you need lying around, you should buy it," he says. But he believes the first principle of financial planning is to avoid disasters, so he advises small-business clients to investigate disability coverage. "Without a safety net, you risk everything you've worked hard to build." That applies even to Superman. So buy disability insurance — then make sure you exercise, eat lots of fibre, and keep away from kryptonite.
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