Are you overlooking some of the most important financial advice for entrepreneurs? Entrepreneurs tend to be highly motivated, but they’re not invincible. No matter how driven you are to succeed, health challenges could force you to take time off. If that happens, your income may dry up fast. No matter how well you’ve been managing your finances, you could eventually run out of savings. As an entrepreneur, you don’t have the same safety nets as traditional employees, meaning it’s up to you to secure income protection.

The Importance of Income Protection in Personal Financial Planning

Most people depend on a regular income – and entrepreneurs are no exception. Entrepreneurs often need to take some risks to achieve their dreams of starting a business, which may involve dipping into personal savings and going without an income for a while. However, the business will eventually need to start bringing in money.

What happens if, after all the hard work of getting your business off the ground, an illness or injury forces you to stop working? If you stop working, you also stop earning.

Disability insurance provides income protection. For many people who are unable to work due to health issues, disability insurance is the only thing preventing financial disaster. For this reason, income protection is a key part of financial planning.

Health Challenges Are Common

When you’re young and healthy, it’s easy to take your health for granted. Unfortunately, health issues are extremely common. In fact, the Social Security Administration says approximately one in four Americans will become disabled before reaching retirement age.

Disability may take many forms. You could:

• Be diagnosed with cancer and need to undergo intensive treatments.
• Suffer a heart attack or stroke.
• Injure your back while skiing or bicycling.

Medical Treatment Is Often Expensive

Although health insurance policies help with many costs during an illness or injury, they tend to leave gaps. For example, you’ll still be responsible for deductibles, copays, and out-of-network costs. You’ll also be dealing with lost income and may also face incidental costs – for example, if you need to travel for treatment or buy products to make your home more comfortable.

All these costs add up, potentially having a devastating financial impact. According to the American Cancer Society, 47% of cancer patients and survivors have medical debt related to their cancer – even though 98% of the people surveyed were insured when they incurred the debt. In 49% of these cases, cancer patients and survivors have medical debt of greater than $5,000. As a result of medical debt, 49% of these people saw their credit scores drop and 30% reported having difficulty qualifying for loans.

Managing Personal Finances as an Entrepreneur

Being an entrepreneur comes with a lot of perks, but there are also disadvantages. Being in charge of your career gives you the freedom to bring your vision to life and the potential for significant financial reward. However, you’re also responsible for your own success – and your own benefits.

Traditional employees have access to many protections that entrepreneurs don’t. This includes WCB coverage for almost all employees. Many workers also have access to a well-rounded employee benefits package that includes health insurance as well as dental, vision, life, and disability insurance coverage.

Entrepreneurs don’t have these benefits, but they can create a safety net by purchasing insurance policies on their own. You likely already buy your own health insurance and may also buy your own life insurance. Given the high risk of disabilities and their financial impact, it makes sense to buy disability insurance, too.

The Stakes Are Even Higher for Sole Breadwinners

Even if you’re the only person who depends on your capability to earn an income, it makes sense to buy income protection. However, if other people also depend on your income, the stakes are even higher. If you can no longer earn an income, you won’t be the only one who suffers financial stress as a result.

For sole breadwinners, income protection is as important as life insurance. Statistically speaking, it may be even more important. We’ve already seen that one in four people become disabled before reaching retirement. The Social Security Administration also says that one in eight 20-year-olds will die before reaching retirement age.

In other words, as a working-aged individual, you’re two times more likely to become disabled than to die.

Your Income Protection Options

As a self-employed entrepreneur, you may not have access to group disability benefits, but you still have income protection options.

If you have individual disability insurance and suffer a covered disability, you’ll receive a monthly benefit to help make up for your lost income. The monthly benefits usually start after a waiting period of around three months and will be a percentage of your pre-disability income. You can customize your policy by adding riders that fit your needs.

To buy individual disability insurance, you typically need to go through a medical underwriting process that may include a medical exam. If you would prefer to skip the medical underwriting process, apply for a simplified issue disability insurance policy. This is a great option for people who have pre-existing conditions that might complicate disability insurance underwriting.

Protecting Your Business

Although taking care of your own personal finances is likely your top concern, you should also consider disability insurance products to protect your small business.

For example, business overhead expense insurance provides a payout to help businesses cover overhead costs if the owner is unable to work due to an illness or injury. Note that it’s not a matter of either/or – you can buy individual disability insurance to protect your own finances AND business overhead expense insurance to protect your business finances.

Other business disability products to consider include bank loan disability insurance (to cover bank loan payments during a period of disability) and key person disability insurance (to provide a benefit to the business if a key worker can’t work due to disability). If you have several employees, look into providing group disability insurance.

One More Piece of Financial Advice: Don’t Wait

You never know when disability might strike. If you wait until you’re diagnosed with a health issue, it will be too late to secure disability insurance. By purchasing disability insurance now, you’ll ensure you have coverage if you need it. You can also lock in affordable rates and generous coverage terms.

Ask yourself:

• How long would your personal funds last if you stopped earning income and received thousands of dollars in medical bills?
• How would you cover your basic necessities and personal expenses once you ran out of money?
• How would your lost income impact the people who depend on you, whether that’s a spouse, children, or aging parents?

If you’re ready to protect your income and your loved ones, take the next step.

Request a free quote >

Once I compile some numbers for you, we can adjust as needed to create a package of protection that best suits your needs and your budget. Remember … any protection is better than no protection. Don’t wait another day to secure your earning power – it’s your most important asset!