Insurance can be one of the larger fixed expenses within every Americans yearly budget. If you are a small business owner you will also be painfully aware of the cost of Worker’s Comp insurance. For industries that are considered high risk, this might mean an additional 15 cents on the dollar of wage expense you are paying to your employees. If you know that owners, in many cases, aren’t required to insure themselves with workers comp insurance, you may be quick to consider dropping yourself off workers comp without taking the time to recognize the risk associated with this decision. If you have found yourself in the situation of declining workers comp insurance as the business owner in order to stay within budget, or save costs, you may be taking a bigger liability than you recognize. The good news is there are other options that should be shopped around for before picking zero coverage.
To recall, workers comp insurance serves two purposes:
- Cover medical expenses associated with a job related injury
- Supplement Income due to a job-related injury or provide money for retraining if injuries are permanent.
If an owner/contractor slipped and fell off a ladder on the job, and spent the rest of their life paralyzed, workers comp is there to support the medical costs as well as supplement the income until retirement age due to their inability to work. In the event they didn’t have workers comp or something similar, they may be paying medical expenses out of pocket, and left without a steady income stream while trying to support themselves and their loved ones. Medical debt is one of the most common causes of bankruptcy.
One insurance policy among the large list of insurance products is individual long-term disability insurance. The purpose of long-term disability insurance is to supplement your income in case you experience an injury that affects your ability to do your job. Whether it is work related, or outdoor Alaska adventure related; long-term disability is designed to cover it all. If you are a small business owner, this is something you should look into. Especially if you are among the majority of Alaska residents that spend your weekends playing in high risk activities like four wheeling, skiing, extravagant hunting adventures, etc. God forbid you crash your four wheeler over the weekend, and are not able to work for months or years; long-term disability is designed to help keep you and your family afloat as you recover to re-enter the work force.
Within long-term disability insurance, there are several riders you can add on. The “own occupation” rider means you are insured to be able to participate in the field of work you are currently working in, and it replaces the standard “any occupation” definition in policies. If you are working in a physically intense field, and do long term damage to your back, “own occupation” ensures you keep your benefits if the specific physically intense work can’t be performed anymore.
Additional insurance to consider is business overhead insurance. This coverage is meant to cover the cost of running your business, excluding your own wages, in the event of a disability. If your business is dependent on your employees showing up tomorrow, this can keep your employees and the rent and utilities paid while you recover.
One important piece of exploring the nontraditional alternatives to workers comp coverage as a business owner is the specifics of your current medical coverage. As a reminder, workers compensation also covers the medical expenses associated with job related injuries. If you choose to take yourself off your worker’s comp coverage, you will want to make sure you are covered for “on-the-job related injuries” with your current health insurance carrier. Calling your insurance and checking with them is the safest way to ensure this is the case.
In summary, know the liability you are taking on as a small business owner going uninsured and be sure you are comfortable with the risk. Long-term disability and/or Business Overhead Insurance might be great options. Depending on the risk associated with your industry, the cost differences among using various insurance policies can be large so shop for quotes and be sure to check with your professional organizations for group options. At AWMI our advisors don’t sell the insurance, but we are happy to brainstorm the questions with you and get you to the right professionals.
Sadie Bjornsen Maubet
Associate Financial Advisor