Home Business: Do You Need Disability Insurance?

As a home business owner, you need to protect your most important asset: You.

You are your most important asset. As a home business owner and primary breadwinner, I am keenly aware of the fact that if something happens to me, things could fall apart, financially, fairly quickly. Since my husband began working as an adjunct professor at two different universities, though, we have less to worry about. But a loss of income due to an injury could still cause difficulty for our finances.

So I have disability insurance.

Disability Insurance for the Home Business Owner

I bought disability insurance a few years ago when my bank offered a special deal on it. A certain amount of coverage was free of charge to bank customers, and there were discounted rates for increased coverage. I decided to go for it.

The amount of disability coverage I have isn't very big, though. It would replace my income for a couple of months — and that's all. Disability insurance is one of the types of insurance a home business owner should consider, because it covers you, and provides you with income, in the event that you become disabled and unable to perform your duties.

However, some disability policies are expensive, and come with restrictions. Before you sign up for a disability policy, make sure you understand what constitutes a “disability,” and the circumstances required for a pay out. If you are concerned about the cost, you can buy a smaller policy, and the supplement with a good emergency fund.

Self-Insuring Against Disability

Another option as a home business owner is to self-insure against disability. Hopefully, you have a good health insurance policy that can cover the cost of a hospital stay and medical treatment. You can build up your emergency fund so that you can cover a loss of income over a few months, due to rehabilitation, or an inability to work. If you are permanently disabled, you will be able to apply for Social Security benefits to help you with your income.

Diversifying your income is another way to help you self-insure against disability. If you have a life partner, it can help to have him or her contribute to the household income. My husband's job takes some of the pressure off me, and reduces the reliance on our emergency fund in the event that some sort of injury or disability prevents me from working.

It can also help to build up passive income streams. A certain amount of passive income, through investments or by some other means, can provide you with revenue even though you aren't working. It takes time to build up passive income streams, though, so you will need to plan ahead for this process, and do your best to create an income portfolio that is practical and long-lasting.

Bottom Line

Consider your situation. If you are concerned that your household finances could take a hit because of a disability on your part, consider some form of coverage, and build a solid emergency fund. You can also increase your chances of weathering a storm by cultivating income diversity and developing passive income sources. You never know when a disability will prevent you from running your home business, and you need to be ready with some sort of plan.

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