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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.
November 2007
Disclaimer
The information provided is general in nature and
does not take into account your particular insurance
objectives, financial situation or investment needs.
We recommend that you speak to an xLife insurance
advisor or life insurance broker before you make any
decision regarding risk insurance. |
