Financial Data
Updated 27 Sep 2020


What happens to your business when you are disabled?

Have you considered the risks facing your business should something happen to you? We discuss the risks to your business and how to mitigate these.


Almo Lubowski, 31 July 2015  Share  0 comments  Print


All the answers to your unique business lifestage questions

As business owners we plan well in respect of running the operations of our business —managing cash flow, supervising employees and dealing with the general day-to-day needs of our business. 

However, we seldom consider a business that has an essential missing piece to it —ourselves. There are different ways this could occur, but in this context we will consider disability — and more specifically, temporary disability.

Related: All you need to know about business rescue

Permanent disability is best discussed in the context of buy and sells and share buy-backs, when there is no possibility of the return of a business shareholder.

Temporary disability is a curable impairment of mental or physical faculties that may impede the affected person from functioning normally, while he or she is under treatment for the condition.

Such temporary disability may severely affect your ability to attend to your business properly. This is a real risk and, as with any risk to your business, you need to consider mitigating factors.

Possible ways to mitigate risk

One way would be to prepare another key person in your business to take over from where you left off. Training somebody to know all the things that you know about running the business is always a good option.

This is also good if you are a sole owner of the business: firstly, it deals with the area of succession planning; secondly, this is a person with whom you have a buy and sell arrangement if something unexpected were to happen to you, permanently affecting your ability to run the business (i.e. death or permanent disability).

The problem with this solution is that it takes time to prepare somebody to take over from you. 

Another way to mitigate the risk of temporary disability would be to build up a fund for such eventualities.

Though building up cash reserves as insurance is generally a good idea for a business, perhaps it is not the best way to mitigate this risk: Because there is no way of predicting when temporary disability might occur, sufficient provision may not have been built up in such a fund.

A much simpler way to mitigate this risk financially is through relatively inexpensive insurance. 

Temporary disability and overhead expense protection 

Essentially these are similar insurance covers. They are similar in that they cover the same insured person and insurable events.Broken -leg _temporary -disability

The main difference would be the amounts insured for. Personal temporary disability cover would be based on and cover your own income, whereas business overhead protection would be based on the expenses of the business, excluding what the business owner pays him/herself.

Other differences would be that temporary disability cover would be seen as an employee fringe benefit — if paid from the business on behalf of the business owner — and taxed accordingly. The business overhead protection can be deducted as pure business expense from business income. 

What cover to get? 

It would be advisable to get a good mix of both the temporary disability cover and the business overhead expense protection. This ensures that as the business owner, you have:

  • An income to cover personal expenses; and
  • Funds to keep the business running, including the potential additional cost of getting somebody who could replace you in your absence.

In the event that you have made adequate personal provision obviating the need to draw an income from the business, you could consider only getting the business overhead protection. This would cover your business operational expenses, as there will naturally be a loss in revenue due to your absence.

No matter how you look at it, this constitutes an unavoidable additional. But the important thing to identify here is the value of such cover in the unfortunate event of something happening to you: you don’t need the burden of possibly losing your business, in addition to dealing with a temporary disability.

How likely would this happen?

It is important to consider that on average 7 in 10 people will experience some form of illness that will causes them to lose income at least once during their working lives.

The question that you should be asking yourself is whether you can comfortably survive 90 days without your income. My assumption is that you will not easily cope.

Related: What systems need to be implemented in business?

Statistically illness represents a much bigger risk than accidents. 80% of claims emanate from illness rather than accidents.

Illness claims are largely due to surgical procedures undertaken by healthy individuals who encounter difficulties following the surgery. Others include medical conditions, injuries, general impairments, childbirth, minor infections and psychological conditions. 

So temporary disability is a risk that must be considered and mitigated. By not being prepared you are putting yourself, your family and those people that depend on your business for their income at a serious disadvantage should something happen to you that affects your ability to run your business.

This risk is probably best mitigated by getting the adequate insurance cover.

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About the author


Almo Lubowski

Almo Lubowski, CFP read for his law degree (LLB) at the University of Pretoria. He subsequently qualified as an attorney and started practising law in Cape Town in 2003. In 2007 he read for his Postgraduate Diploma in Financial Planning at the University of Stellenbosch Business School and subsequently became a CFP® professional. Almo has practised as an attorney, financial planner and fiduciary specialist in his career, mostly working for his own account. He is CEO of The Fortune Group that specializes in financial and legal advice for business owners.

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