Running your own business is rewarding in many ways. However, without the safety nets and security offered by larger corporations, it’s important to consider financial protection as part of essential business planning.
When small business owners think about their insurance needs, they immediately think to put the cover in place to protect their physical assets, such as cars, equipment and buildings. However, they often miss out the most important asset in their business which is themselves and their key people.
Human life is the most important asset. If a person is lost to a business due to death, sickness or disability it will have a significant impact. An event like this can lead to a drop in revenue, loss of clients and could even lead to the banks calling in any debts or liabilities.
What are the benefits of income protection for the self-employed?
As a self-employed, you are not entitled to workers’ compensation. This scheme only provides payment for illness or injury that may arise out of employment and by law the self-employed do not meet this definition.
Income protection will generally cover up to 75% of your monthly income in the event that you are temporarily unable to work for a period of time due to illness or injury. Income protection benefit is usually paid out as a monthly benefit. You can use this benefit to pay ongoing personal and business financial obligations.
Most importantly premiums in income protection are tax-deductible. You can also choose to fund these through your superannuation.
Why do you need life insurance if you are self-employed?
Being self-employed means that you not only carry the personal obligations associated with providing for your family, but also the business expenses that may need to be paid out in the unexpected event of your death. This includes any outstanding accountant, lawyer and adviser fees, Government taxes and any overheads relating to employee salaries, suppliers and lease payments. It’s important to ensure the proper safeguards are in place so there is no risk to their estate.
A death in the business may also result in a change in the business ownership structure. If a business owner dies, their shareholding rights may revert to their estate. For the remaining business partners, this may mean that they are now in business with people they have may have no intention of being in business with.
Life insurance if purchased as a stand-alone policy is not tax-deductible for the self-employed. However, income protection and business expense cover are both tax deductible as stand-alone policies.
As most businesses are unique, it’s important to seek professional advice to assess your situation and work out the cover that best meets your needs.
Note: *The above information provided is general in nature. It is not to be relied upon as personal financial advice. As it has not considered your personal circumstances, needs or objectives.