There are two primary categories of protection for businesses and business owners: general insurance, which typically safeguards assets, and life insurance, which primarily protects individuals. Most business owners are familiar with applications of general insurance in businesses including Public Liability Insurance, Professional Indemnity Insurance, Management Liability Insurance, Cyber Liability Insurance and Tax Audit Insurance. There are also applications of life insurance in business protection including Business Debt Protection, Key Person Insurance, Buy/Sell Agreement Insurance, and Business Expenses Cover.
As a business owner, you’re likely used to insuring your physical assets like buildings, equipment, and vehicles. But what about other important parts of your business, like the people who run it and your financial commitments?
Regardless of whether you’re a small operation or a big company, protecting yourself against risks is just as important as making sure you have enough money coming in. Business protection insurances can help you deal with unexpected events that could seriously impact your business.
Here are some common types of business protection insurances (life insurance) and how they can help you.
Business Debt Protection
Business debt protection helps protect your assets. Whether you are a new business, just starting or looking to grow your business it’s important to protect your assets which may include operational equipment and property that may be secured through loan funding with banks or finance companies.
Having the right insurance in place will mean that you will have the funds to reduce or repay any business debt and importantly protect any personal assets you may have used to secure your business funding.
Business debt protection is designed to provide funds to help pay for business loans in the event of a business owner passing away or suffering a serious disability. It’s a risk that every size and type of business should consider protecting against.
Key Person Insurance
Key person insurance reduces the impact of a decrease in business revenue. The most important thing a business has is its people. You probably have key person, employee or owner who are extremely valuable. Or you may have recently purchased a business and you will rely on the previous owner for a smooth transition. Unfortunately, sometimes life throws unexpected challenges like accidents or sickness that take these valuable key person away sooner than expected.
Key person insurance protects your business by making sure it’s not financially at risk if important personnel (owner, employee, or business partner) were to get hurt, sick, or pass away. It provides money quickly to help lessen the financial impact on your business.
Buy/sell Agreement Insurance
Buy/Sell agreement insurance helps arrange an ownership transfer that is fair. Owning a business in partnership means all partners need to protect their equity investment to ensure that the future control of the business stays with the business. Change in ownership due to death, disability or crisis event could jeopardise the business’s financial future.
It’s important to have a Buy/Sell agreement when you have a business partner. This, along with tailored buy/sell agreement insurance, safeguards the value you’ve worked hard to build.
If your partner unexpectedly falls ill or passes away, it can disrupt your business significantly. You might experience a sudden loss of income and expertise. Negotiating with their family, who may lack the skills to run the business, can be challenging. Additionally, if your partner is ill for an extended period, you’ll need to balance supporting them with sustaining your business without their contribution.
A well-structured Buy/Sell agreement, backed by sufficient buy/sell agreement insurance, is essential. This agreement outlines what happens if an owner exits the business due to illness, disability or death. Buy/sell agreement insurance provides funds for the surviving partner to buy out the departing partner’s share, ensuring the protection of both parties’ interests.
Business Expenses Cover
Business expenses cover protects your business cash flow. Cash flow can often be the deciding factor to the success or failure of a business. Critical to keeping your business afloat financially is having cash flow to pay for expenses to keep your business operating.
So what would happen to your business if you were unable to work as a result of sickness or injury? How would your business keep afloat?
Business Expenses cover is a financial back up plan for your business. It gives you the reassurance knowing that you’ve got a plan in place to help keep the business running if you get sick or are injured and can’t work.
Business Expenses insurance covers your fixed business costs as a monthly reimbursement so you can focus on your recovery – and not your bills! Expenses that can be covered typically include rent/lease payments, interest on business loan payments, equipment leasing, car leasing costs and utility bills like water and electricity.
How much does Business Protection insurance cost?
The cost of Business Protection insurance varies depending on several factors, including the age, gender, lifestyle, occupation of the life insured, as well as the type and amount of insurance needed. For instance, Canstar’s research suggests that a non-smoking woman in her 30s might expect to pay around $30 per month on average for a life insurance policy with a $500,000 benefit. Conversely, a multi-million dollar Business Protection insurance policy designed for funding buy/sell agreements could cost businesses tens of thousands of dollars annually. Regardless of business owners’ circumstances, we are here to assist you in identifying your protection needs, recommending suitable solutions, and guiding you through the decision-making process with expertise and care.
Peter Sang leads Wealth Management, using his experience as a CPA and Certified Financial Planner to provide ethical advice on investments, superannuation, and retirement planning.
