Small Business, Big Risks!

With business and personal debts to their name, small business owners have a lot of reasons to protect themselves financially. So why do so many ignore the risks?

When you’re a small business owner, you pour your heart and soul into your business. And why wouldn’t you – it’s yours! But what many small business owners fail to think about is the vulnerability of their financial situation. Having so much at stake, both emotionally and financially, might be great for motivation. But it’s not so great if something happens to you and you can’t work.

And it can be even more devastating if you’ve got a family depending on you.

Bridge The Protection Gap

According to a 2006 survey by the Investment and Financial Services Association (IFSA), less than half of small business owners feel they have adequate cover . So if they know they’re not properly covered, why aren’t they doing something about it?

One of the reasons is that there's a perception insurance is too expensive.

But think about the sort of money you’d lose if you couldn’t work for a few months. Or worse, if you could never work again. It certainly helps put the cost of insurance into perspective.

It Could Even Reduce Your Tax Bill

Income protection insurance is one of the most relevant types of cover for everyone, including small business owners. It can replace up to 80% of your income if you can’t work because of sickness or injury.

In the IFSA survey, 95% of small business owners said they were aware of what income protection was, but 56% thought it was too expensive.

So cost is obviously a big reason for the lack of protection.

But the fact 47% of respondents did not know that income protection premiums were tax-deductible shows there’s a lack of understanding around how much insurance actually costs.

Business expenses insurance – which covers your fixed business expenses like rent, electricity and non-income producing staff wages if you can’t work because of sickness or injury – is also tax-deductible.

So by combining these two types of policies you can cover your work and personal expenses. And potentially reduce your tax bill.

How much does it actually cost?

Case Study – Plumber

Let's take the example of a 37 year old male plumber who earns $80,000 pa. He takes out:

1. An income protection policy to cover 75% of his income (or $5,000 per month), and
2. A business expenses policy to cover $5,000 per month of fixed business expenses.

His total premium before tax is $4,017. But because his premiums are tax-deductible, his after-tax premium reduces by 41.5% (his marginal tax rate) to $2,350. At about $45 per week, that’s the equivalent of a take-away pizza and a six-pack of beer each week.

Source: Asteron Life Limited, based on a non-smoker taking out an Agreed Value Income Advantage policy, and an Indemnity Contract Business Expenses policy, both with 30-day waiting periods and stepped premiums paid annually.

Case Study – Doctor

Let's take the example of a 39-year old male doctor who earns $120,000 pa. He takes out:

1. An income protection policy to cover 75% of his income (or $7,500 per month), and
2. A business expenses policy to cover $10,000 per month of fixed business expenses.

His total premium before tax is $2,660. But because his premiums are tax-deductible, his after-tax premium reduces by 41.5% (his marginal tax rate) to $1,556. At about $30 per week, that’s the equivalent of a take-away pizza each week.

Source: Asteron Life Limited, based on a non-smoker taking out an Agreed Value Income Advantage policy, and an Indemnity Contract Business Expenses policy, both with 30-day waiting periods and stepped premiums paid annually.

Get The Cover You Need

The best way to find out what cover you need is to speak to a financial adviser. They can help you get the right cover, and make sure it’s structured in a way that makes it as cost-effective as possible.

Everyone needs insurance. But few people need it more than small business owners. So make it your business to get the advice, and the cover, you need.

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