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Small businesses must plan for the unexpected

CarleeMcCullough-160ON OUR WAY TO WEALTHY: Even with the full understanding that some accidents and illnesses cannot be avoided, few small business owners plan for the unexpected. One step in the planning process is to make sure proper insurance coverage is in place.

For the most part, we are all accustomed to purchasing the basic insurance policies that cover our home, car and life. But there are different types of disability income insurance plans that will protect income and even pay bills when necessary.

Disability income insurance is designed to maintain financial stability when you are sick, hurt or unable to work by providing a monthly income directly to the business owner. It is typically used as the primary income replacement that helps prevent the depletion of savings and retirement income.


One of the largest debts that an individual has is the home mortgage. So imagine the stress that ensues when an illness comes about that prevents the entrepreneur from working and paying the mortgage. With Mortgage disability income (MDII) in place, the business owner can rest easy knowing that insurance will cover the bill by providing a percentage of income lost.


Individual Credit Disability Insurance (ICDI) is used to pay monthly loan installment payments. Payment under ICDI typically requires total disability by accident or sickness. The benefits are usually made payable directly to the various financial institutions. The policy may have exclusions and limitations, which mean that the payments will not be made under certain circumstances.

While policies vary company to company, typical scenarios that will prevent payouts may include normal pregnancy and childbirth excluding complications, intentional self-inflicted injuries, and/or pre-existing conditions to name a few.

Types of Disability Insurance

When shopping for a policy, make sure to inquire about whether the policy will pay for partial disability or total disability. This is important to know what you are paying for and the exclusions. The various types of disability income insurance include: "True Own-Occupation Disability Insurance," "Modified Own-Occupation" and "Gainful Occupation."


Under the true own-occupation type of policy, the definition of total disability is if the policyholder is unable to perform the material and substantial duties of his or her regular occupation. The insurance company will even pay the claim if you are working in some other capacity. This is good, because most people want to work and be productive.

If the opportunity presents itself to get back to work in some other capacity other than your original occupation, the benefits under the policy may not be jeopardized and the claim will usually be paid. So this type of policy appears to be the most flexible and lenient of the various types.

Under income replacement insurance, the definition of total disability is if the policyholder is unable to perform the material and substantial duties of his or her occupation and is not engaged in any other occupation. The policyholder will be penalized if he or she is capable of working in another capacity other than the original occupation. The insurance company may deduct any income generated by performance in other capacities from the monthly benefits issued.

The definition of total disability under gainful occupation is the most stringent and restrictive. Total disability is if the policyholder is unable to perform the material and substantial duties of his or her occupation or any occupation for which he or she is deemed reasonably qualified by education, training, or experience.

So under this type it does not matter that the policyholder cannot perform his or her original occupation if the ability to perform any other exists. If the policyholder can perform in another capacity, benefit payouts may be limited under this type of plan.

Costs of policies

The cost of the policies will vary based on the following: company, age of policyholder, type of plan, exclusions, and desired duration of payouts.

Monthly benefits can be payable for a fixed period of time whether it be 2 years or to age 65 while the disability continues. There may even be a waiting period between the time when the claim is filed and the time payouts are received. So a cushion of savings would be recommended if possible.

The policy premium may also vary depending on the occupation of the policyholder and the risk involved in their job. Generally, the policy will only cover a portion of the policyholder's income, usually between 50 percent to 70 percent of the income.

Providing protection for most people's biggest asset – which is income – is of the highest importance. So, can small business owner afford to be without it?

(Contact Carlee McCullough, Esq., at 5308 Cottonwood Road, Suite 1A, Memphis, TN 38118, or email her at This email address is being protected from spambots. You need JavaScript enabled to view it. .)

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