As a CEO or senior executive, you have reached the pinnacle of your profession. That success comes with significant responsibility and compensation.

Are you prepared for the possibility that an injury or illness could prevent you from fulfilling your duties? Can you and your family withstand losing some or all of your income in the event you can’t work?

You could if you own disability insurance, which is designed to replace a major portion of your income if you are unable to work due to injury or illness.

Here are questions CEOs and other high-income earners should ask as they consider the need for disability insurance.

What are the risks of becoming disabled?

For the general population, about 25% of working Americans will suffer a disability at some point before retirement.

The leading causes of disability include musculoskeletal issues, cancer, cardiovascular disease, injuries, and mental health. Nobody, not even a well-compensated executive, is completely immune to these ailments.

As a CEO or other high-ranking business executive, you have a stressful job. Over time, this lifestyle can contribute to heart disease, digestive disorders, and mental illness that may take you out of work for an extended period.

And in the last few months, the COVID-19 pandemic has become a disability risk, especially for people over 50 and/or with preexisting health conditions.

Can I live off my savings?

It’s possible to get by on savings, especially if your disability is one you can recover from in a few months.

Long-term disabilities are another matter. Imagine losing your income for a year, two years or even longer. How long would your savings be able to support your existing lifestyle? Then what happens after you’ve depleted those savings?

That’s where long-term disability insurance can help. Benefits periods for this type of coverage often range from two to 10 years, or until ages 65 or 67.

Also, consider where those savings are coming from. If you sell appreciated assets to cover your expenses, you’ll have capital gains taxes to pay. If you liquidate qualified retirement accounts before you reach age 59 1/2, you’ll likely have to pay a tax penalty plus income taxes on the withdrawals.

Disability insurance benefits are tax-free if you personally pay the premium on the policy.

Will my employer's group policy provide enough benefits?

If you’re banking on the group disability insurance that all employees of your company have, your benefit will likely fall short of your current needs.

Group disability policies typically pay 60% of your income. But there is also a cap on benefits, so the percentage will likely be much lower than that for high-earning executives.

This highlights the importance of owning an individual disability insurance policy that is prepared to accommodate your unique financial circumstances.

What happens to a business partnership if an owner becomes permanently disabled?

If you own a business with partners and fulfill an active role, a disability can have a doubly negative affect. Not only will your income suffer, but your business may as well. That’s why it is recommended that partnerships have buy-sell agreements in place.

A buy-sell agreement is a legal arrangement that specifies what happens if one business partner dies or is unable to continue working due to a disability. A buy-sell typically stipulates that the remaining partners buy out the affected partner’s stock in the company.

The arrangement includes the purchase of buyout disability insurance for each partner. The policies are owned by the company. In the event a partner becomes disabled, the policy’s proceeds are paid to the remaining partners. They would use those funds to buy the affected partner’s share of the company.

Another type of company-owned disability insurance is key-person disability insurance.

A key person is defined as somebody within a business who is critical to its success because of their particular skills, knowledge, experience, or leadership. This could include a chief executive, sales vice president, or lead product engineer.

If a key person cannot work due to injury or illness, the company will need to spend money to find an adequate replacement. A disability insurance policy that is owned by the company and that insures the key person can provide the funds to pay expenses for hiring outside help or to recruit or hire a replacement.

What are the tax implications of disability insurance?

The tax treatment of disability insurance depends on who owns the policy and who pays the premium.

If you are the owner and the insured of the policy and pay the premium, you will not receive a tax benefit for buying a disability policy. You will, however, receive any benefits tax-free.

The opposite is true if the policy is paid by your employer. The company can deduct the premiums as a business expense. If you receive the benefits from a policy your employer paid for, it will be considered taxable income.

Get help with finding the right coverage

Due to the complexities of disability insurance, your financials, and your business, it’s highly recommended you enlist the help of a licensed insurance agent. They can help you find a disability insurance policy designed for the needs of a business executive.