Office Overhead Expense Disability Insurance

Most people who have thought about it own Disability Income Insurance.  That will protect your personal spending while you are unable to earn a living.  But, what about the business expenses that will carry on even while you are unable to attend?

Things like the lease, the bank loan principal and interest, the support staff, the heat and hydro, the association fees, the insurance, the municipal taxes and many more fixed expenses.  The telephone bill seldom can go away because you would like to keep the number.  The staff stays unless you want to train a new one when you get back.  The bank and the leasing company probably expect to get paid too.

Hiring temporary help might not leave enough margin to cover all the expenses, so you have implicitly selected other options.

After the fact, you have choices.

  • Kill off all the expenses quickly.  But that does not really work because in the short run you will not know for sure if you can come back to work.
  • Erode you savings.  Then what?
  • Sell.  At a good price?  Right.
  • Hire people to do what you do.  Difficult, more likely impossible.  Will you be up to finding them? How to terminate them when you come back?

Before the fact you have other choices.

  • Build depth so employees can run the business without you.
  • Have emergency succession arrangements so some other business can cover you for a while.
  • Own appropriate insurance.

Of the seven choices above, owning Office Overhead Expense insurance is by far the easiest to execute.  Better yet it does not get in the way of any of the other six should they develop over time.

It is relatively inexpensive and for self employed persons, it should be part of any well-constructed disability insurance plan.  This insurance protects your savings and the way you have constructed your business.  Both are hard to replace.

Ask your insurance adviser about it.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Disability Income Insurance – two myths debunked

Most people know at least something about this product – usually called DI – however there are a lot of misconceptions and I am going to try and sort out a couple of the main ones here.

Myth – none of the policies ever pay and if they do pay, you have to be nearly dead!
While it is true that there tends to be some litigation or mediation involved for many claims, most situations where payment is contested by an insurance company involve either a lack of full disclosure of pre-existing conditions or issues arising from the claim itself concerning the true extent of disability. When answering the medical, personal habits and activities question, make sure you disclose everything, regardless of how trivial it might seem. Ensure your advisor is accurately recording your responses because you are responsible for what is on the application even though someone else wrote the information. All insurance contracts are defined as contracts of the “utmost good faith” and the insurance companies have a legal right – and responsibility – to hold to that definition. Trying to hide or not disclosue information such as recreational drug use or even something such as mountain biking, can result in the claim being denied.

As for the second part of this Myth, it is unfortunate that news reports only focus on cases where benefits are being denied, not the hundreds of millions of dollars that are being paid. Cases that involve obvious physical or medical injuries or damage are very rarely questioned – it is the potentially ambiguous cases that get challenged. Many such cases involve soft-tissue injuries which don’t appear on traditional X-rays, MRIs or CT-scans – it is the client’s word and most medical practitioners will err, as they should, on the side of caution and support claims for disability when requested. Believe it or not, the insurance company does want to pay the claim – but only the legitimate claim. Soft-tissue cases are very hard to evaluate but there is new technology that is now being used – IR scans – Infra-Red scans of the human body. Quite interesting to see actually – the scan measures heat being radiated and displays this on screen or printed hardcopy in living colour! Our bodies are miraculous compensators and the body does its best to heal itself. It does this by sending more blood to injured parts of the body – and concentrations of blood are WARMER than the surrounding tissue. Guess what, the higher temperature areas appear in RED on the IR scan and it is very easy to see if there is indeed an injury to soft tissue, because the affected area now appears bright red!

Guess what – no concentrated area of heat, no soft-tissue injury and therefore no valid claim!

If a claim is denied, there is always a sound reason for that decision – insurance companies don’t take those decisions lightly; they know it will end up in the media somewhere. When you do see such stories, don’t judge by the headlines; read the facts. Headlines are written to get your attention and mine – they do not tell the entire story.