Ensuring that you're insured

Small business owners are particularly vulnerable to the risks of a prolonged illness or disability, because they're often the business's main asset. In other words, the business's success often depends on the owner's ability to earn income. As a business owner, you need to protect both your personal and business income. And the right insurance provides that protection.

In my opinion, you can't have too much disability insurance. Most insurers won't sell you more than 60 percent of your average earned income because they want you to return to work as soon as possible. My advice: Buy as much as your insurer will sell you.

There are two basic kinds of disability insurance: income replacement and own occupation. Income replacement pays benefits if you suffer a loss of income due to a disability. So a small animal practitioner who becomes disabled but could replace his or her income in another line of work wouldn't collect.

Own occupation pays benefits if you can't perform the material and substantial duties of your occupation due to sickness or injury. The small animal practitioner above would be considered totally disabled and would receive benefits as long he or she was unable to work as a small animal practitioner. This is true even though the veterinarian might completely replace his or her income in another line of work. Not surprisingly, own occupation is the approach I recommend.

I also favor individual policies over group plans. With group plans, your insurance company or sponsoring association can cancel unexpectedly, and they can raise your premiums. With individual policies, the insurance company will renew your contract if you have a guaranteed renewable policy and always pay the premiums. And you can make sure your rates aren't raised with a noncancelable policy. Some individual policies also offer a future purchase option, which lets you increase the amount of coverage at a later date without answering medical questions or undergoing an exam.

You should also consider business overhead insurance, which covers rent, salaries, utilities, lease payments, loan payments, and other ongoing costs. That kind of coverage allows the business to continue operating for one to two years in the owner's absence, so you could sell the practice if you had to—or come back to it if you recovered.

The truth is, disabilities are all too common. A 35-year-old is six times more likely to become disabled than to die. If this practice owner earns $100,000 each year, the long-term disability is a $3 million loss over his or her projected lifetime. (That is if the practice owner would have retired at age 65, because he or she would've made $100,000 for the next 30 years.) And a long-term disability can have greater financial consequences for your family than death. With death, the deceased's income stops. With disability, income stops and family medical expenses may escalate. So it's prudent to make sure that life can carry on even if you can't.

Your greatest asset is your health. After all, that's what enables you to generate income. So protect your health at all costs—and protect yourself, your family members, clients, and employees in case it fails.

Veterinary Economics Personal Finance Editor Fritz Wood, CPA, CFP, owns H.F. Wood Consulting in Lake Quivira, Kan.