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The success of your business was no accident. You did research, created a business plan, secured capital, and identified market need and location. You set up shop in the perfect spot. Hired the right staff. Opened your doors for business. And never looked back.
Throughout this process, you may have thought about the risks inherent in being an entrepreneur, but did you think about the risk of becoming disabled? According to the Social Security Administration, one-in-four individuals aged 20 will have a long-term disability before they reach retirement age.
A business owner becoming disabled can significantly impact both their personal finances and the business itself. Yet only 31 percent of business owners have a strategy to replace their income if they are no longer able to run their businesses and only 21 percent have coverage in place to fund the buyout of a partner in the event of a disability, according to the 2025 MassMutual Business Owner Perspectives Study.
In severe cases, a prolonged or permanent disability could threaten the very existence of the business. But even if the worst-case scenario is avoided, a disability can have numerous detrimental impacts on the business, including:
- Operational Disruption: Many businesses rely heavily on the owner's involvement, especially in day-to-day operations. A disability can lead to a loss of key contributions, potentially affecting productivity and revenue.
- Financial Burden: The business may face increased expenses related to hiring temporary help, covering routine expenses and salaries, or even just “keeping the lights on” during the owner's absence.
- Employee Impact: A disabled owner can negatively affect employee morale and potentially lead to layoffs or employees leaving for a competitor, impacting the continuity of the business.
- Customer Impact: A disability can lead to a decrease in customer satisfaction if the owner is away for an extended period, especially if they are the key point of contact for servicing contracts, handling special requests, and resolving complaints.
Disability insurance, both for the owner and for the business, can help mitigate these risks by providing financial support during recovery and allowing the business to continue operating.
These products include:
- Business overhead expense (BOE)
BOE insurance can help ensure the continuity of your business by helping pay for day-to-day expenses. It helps cover the business overhead expenses that can help keep the doors open for up to two years. Employee salaries, rent, leases, insurance premiums, and utilities can all be taken care of. It can even help pay the salary of a temporary replacement.
- Disability buyout insurance
A buy-sell agreement funded with disability buyout insurance can help safeguard your business by providing the funds necessary to purchase a disabled partner’s share of the business. In addition, it can also provide the definition of what it means to be disabled to eliminate potential conflict between partners.
- Disability income (DI) insurance
Finally, if you are like most business owners, your business is your largest income producing asset. Not being able to work in the business that is your livelihood can have a significant effect on you and your loved ones’ standard of living. DI insurance can help replace your loss of income if you are unable to run your business for an extended period of time.
Remember, if your agreements and plans are not properly funded in accordance with the current value of your business you may need to liquidate personal or business assets to keep the business afloat in the event of an unfortunate, unforeseen event. By taking proactive steps like securing disability insurance, and creating a solid business continuity plan, you can better protect yourself and business from the potential financial and operational consequences of a disability.
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