By Jeffrey Kent
Originally published in ASCP's Skin Deep, June/July 2007.
Disability is something that happens to someone else. I’m strong. I’m healthy. It won’t happen to me.
That’s how most of us think. Like cancer or a car wreck, we never think a medical disability will strike us. Unfortunately, some sort of extended disability is far more likely than most people think. According to the U.S. Social Security Administration, a twenty-year-old worker has a 30 percent chance of becoming disabled before reaching retirement age. That chance increases to 43 percent by age forty. Research from the insurance industry indicates one in three Americans will be disabled for ninety days or more before age sixty-five.
For a small business owner or sole proprietor, an extended absence from work can be financially catastrophic. If you fall ill or suffer a major accident, you don’t get paid. On top of that, you’ll probably be facing a mountain of medical bills. A study conducted by Harvard University shows medical expenses cause roughly half of all bankruptcies in the United States, even though many of those filing were covered by health insurance.
Navigating the Safety Net
Many people feel they can rely on Social Security to come to the rescue in the event of an extended disability. Social Security does provide valuable resources to those who are deemed medically or mentally disabled. However, applying for these benefits can be a lengthy and tedious process. And the payments don’t start right away. By law, Social Security disability payments cannot begin until you have been disabled for at least five full months. This means you won’t receive any money until your sixth month of disability, leaving you out in the cold during those first few months when most people really need the cash— that’s if everything goes smoothly and gets approved on the first go-round. Don’t count on that. Social Security disability has stringent rules that exclude the majority of applicants. In most cases, you have to be deemed unable to perform any type of work, not just your chosen work in the skin care profession.
The bottom line is you don’t want to depend on government help if you’re struck by a disability. Even if you qualify for Social Security benefits, you will almost certainly experience a dramatic reduction in your standard of living. So, how do you protect yourself in the event of a disability? What can you do to ensure an adequate income during tough times?
Preparing for the Worst
You don’t want to think about it, but disability could happen to you. Just in case, it’s best to prepare for the unthinkable.
Review your Health Insurance. Health insurance can be extremely expensive, especially for self-employed individuals. However, if you do experience a major medical problem, costs can spiral out of control before you know what’s happening. Having up-to-date, comprehensive medical insurance is critical. It’s one of the most important investments you can make for your financial well-being.
At the very least, insure yourself against major events. You can save on premiums by choosing a higher deductible and selecting coverage targeting catastrophic medical problems. Also, don’t forget that if you’re self-employed, your health insurance premiums are 100 percent tax deductible.
Secure Private Disability Insurance. Statistically speaking, you are far more likely to be disabled for an extended period of time than to have your place of business burn down. Strange then, that most people purchase fire and casualty insurance to cover their business property, but few think to insure their actual income.
Private disability insurance is an answer for small business people who want to guarantee income if they’re knocked out of commission. Plans typically pay a portion of your regular income, often around 60 percent. It’s a strictly underwritten type of coverage, so the best time to set up a plan is while you’re still in good health.
Like all types of insurance, your premiums will vary widely by the extent of coverage you choose to purchase. It’s a good idea to shop around and consider your options. You may even want to consider an insurance broker to help you negotiate this tricky landscape. In many cases, you can arrange a suitable policy for less than what it costs to insure a car.
Build a Cash Reserve. Most experts recommend maintaining a three- to six-month emergency savings fund. Since Social Security benefits don’t kick in for at least six months, and private disability insurance often has a ninety-day waiting period, it’s important to have cash on hand to get you through the tough early days of a major medical issue. It’s best to keep this money in an easily accessible account, such as an interest-bearing savings account or money market fund.
Of course, building a substantial reserve fund is easier said than done, especially for start-up businesses that take out loans or use credit to get underway. However, as soon as business stabilizes, this fund should be a top priority.
Investigate Long-Term Care Insurance. Many small business owners are now looking at long-term care coverage to supplement disability insurance. Long-term care insurance picks up where disability insurance stops, providing cash benefits for extended medical care. The coverage continues for life, whereas disability insurance coverage usually ceases at age sixty-five. Additionally, if you are incorporated, the premiums are tax deductible as a business expense (fully deductible for C corporations and partially deductible for S corporations). Not only that, the benefits are tax deductible as well.
Dealing with Disability
If you are struck by a major illness or injury, there are several steps you can take to improve your financial condition. Disability isn’t easy, but you do have options.
Consider a Partnership. If you’re unable to run the business on your own, look into partnering with another Associated Skin Care Professional member. If your associate can cover your clients while you’re away, it could reap benefits for both of you. She’ll have a more lucrative practice for a while, and she can maintain your customer base while you’re recovering. If you’ve built strong relationships with your clients and your partner agrees not to treat your clients once you are back in business, it’s a win-win-win. You might be surprised by how much hardships bring out the best in people, as they rally around you and welcome you back to work.
Look into Skin Care Schools. Consider sending your clients to a student clinic at a reputable skin care school. While the services are less expensive, and clients may get used to the lower prices, it’s less risky clients will become attached to another practitioner, since students aren’t really in business yet and are likely rotating through the clinic fairly rapidly.
Downsize and Cut Costs. If you’re capable of operating your business at a basic, skeletal level, that’s better than closing your doors entirely. If you rent commercial space for your business, try moving the operation to your home. Examine your product and service lines and eliminate items that don’t sell as well. Limit your inventory. Do anything you can to reduce overhead.
Know Your Resources. The U.S. Small Business Administration is dedicated to helping small businesses succeed. They provide loans, free business consulting, and a wide variety of information for keeping your small business healthy, even if you’re not. If times get particularly tough, there are several assistance programs that provide food and basic nutritional needs. The food stamp program is the government’s first line of defense against hunger. If you’re a mother who is breastfeeding or rearing children up to age five, you can also receive special nutritional assistance through the U.S. Department of Agriculture’s Women, Infants, and Children (WIC) program.
There are numerous associations and web-based communities that focus on small businesses. Many of these groups run discussion boards for entrepreneurs. While few of these are specific to estheticians, you may be able to garner valuable information from communicating with other independent business people. At the very least, you may find the sense of community comforting.
Jeffrey Kent is a Denver-based freelance writer whose work has appeared in Alternative Medicine, American PHOTO, Adventure Sports, and many other magazines.
Member Benefits, pages 30–31, June/July Skin Deep. Various health and wellness insurance options.
Easy-to-read, side-by-side health policy comparisons—www.ehealthinsurance.com
National Association for the Self-Employed—www.nase-health-insurance.com
U.S. Department of Agriculture Food and Nutrition Service (food stamps)—www.fns.usda.gov/fsp
U.S. Department of Agriculture’s Women, Infants, and Children (WIC) program—www.fns.usda.gov/wic
U.S. Small Business Administration—www.sba.gov