With many business owners so busy with the day-to-day operation and development of their business, there’s often no time to think about what would happen if they, or one of their business partners, become too ill to work or even died.
Getting insurance in place should be a critical part of business planning and is something business owners shouldn’t put off for too long, as things can get quite messy if there isn’t a clear plan in place.
When you see how hard many business owners work, it’s simply not worth risking it all by not taking the time to protect the business.
So what do business owners need to consider?
There are three things business owners may need to consider – personal insurance, business insurance and a succession plan.
The four main types of personal insurance that all business owners should consider are income protection (also called salary continuance), trauma insurance, life insurance, and total and permanent disability (TPD) insurance.
Income protection provides an income benefit, generally up to 75% of your salary, should you be unable to work due to sickness or injury.
Trauma insurance pays out a lump sum should you or your business partners be diagnosed with a defined critical illness such as a cancer, a heart attack or a stroke.
TPD insurance is definitely worthwhile, as this provides a lump sum that could be used to provide an ongoing income should you or your business partners no longer be able to work due to permanent illness or injury.
And then of course there is life insurance, which pays a lump sum benefit to your beneficiaries or estate if you die.
Ensuring you and your business partners have a combination of these insurances in place can be an inexpensive way for you to manage risk within your business and gives you the peace of mind that you and your family are protected, if you were to become ill, injured or if you passed away.
Protecting your business
After safeguarding you and your business partners personally, the second consideration is protecting the business itself.
This is where business expense insurance comes into play as this provides your business with a benefit for the period that you’re not working.
The benefit can be used to cover the ongoing costs associated with running your business, such as salaries and regular expenses like rent, utilities, leases and business loans.
Having business expense insurance in place will help you to keep your business running should something happen, allowing you to focus on your health and your return to work.
Example – How business insurance works
Margaret, 45, had been running her own accounting firm for 8 years, when she fell over outside her home and broke her hip.
Her financial adviser had helped her to put business expense insurance in place when she started her own business, and this provided her with a monthly payment, which she used to pay the salary and superannuation of both herself and her two full-time employees.
Margaret’s injury took a little longer to heal than first thought, so she was also able to use the benefit to hire a part-time business manager to run her business until she was well enough to return to work.
This meant her clients and her staff could manage the business without her in the office each day and she was able to focus on her rehabilitation.
Have a written succession plan
While having the right insurance in place is certainly important, the third step involves having a written succession plan that outlines what would happen should you or one of your business partners become sick or die.
While insurance, both personal and business, will help make things more manageable financially in the short term many business owners often overlook the long-term impact of them or one of their business partners not being able to return to work due to ill health.
Having a written succession plan in place provides greater certainty about what would happen in this situation, and ensures your family and your business partners’ family receive their share of the business in a timely fashion, with minimal financial impact to the business itself.
These conversations are often easier when everyone is well and the business is thriving – they are far more difficult once an event has occurred.
To find out more about how a financial adviser can help you protect your business, go to Contact Us for details.
RI Advice Group Pty Limited (ABN 23 001 774 125), Australian Financial Services Licence 238429. This editorial does not consider your personal circumstances and is general advice only. You should not act on the information provided without first obtaining professional financial advice specific to your circumstances.