As a business owner, you insure your premises, vehicles, and products yet you may overlook insurance for yourself, your business partner and key staff against injuries, illness, and death. Have you ever thought about how your business would cope without you? How would you cope without income protection? What would happen to your business if you or your business partner passed away? Business insurance and succession planning will provide you and your business with protection and clarity if these situations arise.
Business insurances you should consider
Business expense protection
A business expense policy will help cover the operating costs involved in running your business if you become injured or ill. Expenses can be things like rent, bills, and wages. This will allow your business to continue while you focus on your recovery.
Business expense protection is most suitable if you’re the sole owner of the business or the business relies heavily on your services to generate cash flow. Premium payments are also tax deductible for this type of insurance.
Key person insurance
If your business depends heavily on a key person, taking out insurance on that individual is important. The insurance proceeds help mitigate some of the negative impact of losing a key person so you can continue running your business.
There are 2 main types of key person insurance:
1. Revenue – helps to compensate for the financial loss and additional expenses incurred by the loss of a key person through injury, illness or death. This insurance can cover revenue loss, business expenses, and costs associated with finding replacements or temporary staff.
2. Capital – insures against the loss of capital value of a business. Losing a key person can affect the goodwill in a business when important client relationships are negatively impacted. Proceeds can also be used to repay business loans.
Insurance premiums for revenue protection are generally tax deductible and the proceeds may be considered as assessable income.
What is business succession planning and why is it important?
If you own a business with one or more partners, then business succession planning is something you need to consider. In the event where you or your partner falls ill, becomes seriously injured, or passes away, then a business succession plan will provide clarity and security to the remaining business partners. This is set out in the form of a buy/sell agreement and is usually combined with term life, TPD, and trauma cover.
How does a buy/sell agreement work?
A buy/sell agreement functions like a will. It provides clear options to the remaining partners with regards to the business. Many of the decisions are made in advance, such as the right to purchase the business at an agreed sale price. This means things can be resolved in a timely manner and the business can get back on track faster. The certainly also provides owners with a sense of security in knowing what will happen and how each partner is compensated if mishap arises. When combined with life insurance, the payout will provide the funds needed to transfer business ownership. However, a will is needed to direct the funds to the continuing business partner.
Injury, sickness, and death can strike at any time. Your business and the key team should be covered to ensure continuity of your business. Finding the right business insurance can be overwhelming. At Moiler, we consider your circumstances, business structure and family circumstances in order to find the best plans for you. Please contact us to discuss how we can help you.
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This document has been prepared by Moiler Partners, an Authorised Representative of Count Financial Limited ABN 19 001 974 625; AFSL 227232 (“Count”) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 and is for general information only. The presentation has been prepared without taking into account your personal objectives, financial situation or needs. You should assess whether the information is appropriate for your needs and consider talking to a Count Authorised Representative before making any investment decision. The relevant PDS should be considered before making a decision about any financial product. The information is provided as an information service only and does not constitute financial product advice and should not be relied upon as financial product advice. 8 July 2019.