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Business owners must protect their greatest asset – their ability to earn an income.

Jun 10, 2014

Business owners know that insurance is a necessary part of protecting their livelihood from unexpected loss. However over 80% of business owners still don’t have adequate insurance in place to protect themselves if an unexpected event affected their ability to run their business.

Small business owners routinely insure their premises, employees and equipment but all too often they fail to protect themselves adequately.

“Small business owners are the most important asset to their business and their insurance cover should reflect this. Income protection insurance is one of the best ways for a business owner to protect themselves, their family, and any silent shareholder of the business who relies on the income” says Peter Edmonds, Director of Perks Integrated Business Services.

“Typically, they have a mortgage or children’s school fees they need to meet plus other day to day living expenses that they just wouldn’t be able to meet if there is no income. Income protection insurance is essential,” he says.

According to the Insurance Council of Australia the likelihood of experiencing a critical illness before the age of 70 is shown to be around 59 per cent for males and 42 per cent for females. This could include being diagnosed with cancer, suffering a stroke or heart attack or even death from a critical illness.

“While it may sound clichéd, it is a fact of life that accidents do happen and we all get sick. It can happen to anyone at any time and it’s extremely important to plan to protect against the financial hardship that so often follows, particularly if you’re a small business owner.”

Loss of productivity, finding the money to continue paying your sick leave provisions plus the extra cost of funding a temporary replacement are just some of the issues that may emerge while a small business owner is off work. This can not only jeopardize the immediate financial health of the business, but also the long-term financial goals of their family.

“Having adequate income protection can provide financial assurance around these costs, giving peace of mind that the future you’re currently planning for the family can still take place” says Peter Edmonds.

When it comes to taking out income protection insurance, the challenge for small business owners is the often highly variable nature of their income. There can be swings of tens, if not hundreds of thousands of dollars from year to year. This can often be the cause of the under insurance problem.

“Income protection generally covers up to 75 per cent of your income if you are unable to work due to serious sickness or an accident. It allows you to continue to pay financial commitments until you return to work, and the income protection premiums are generally tax deductible” says Peter Edmonds.

The cost of the appropriate level of cover will vary, and depends on the age, sex and health history of the policyholder, as well as whether they smoke.

There are also other measures business owners can take to protect their business should key people be unable to work due to injury or illness. This is known as key person insurance and it’s worth exploring this type of cover, alongside income protection, to ensure the business and its owners are appropriately protected.

If you would like more information on how you can ensure you are adequately insured please call us today on (08) 8273 9300.

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