Why should business owners take out income protection insurance?
If you are a business owner, then one of your biggest assets that you have at your ability to run the business and make an income. It's essential that you protect this asset properly in the even where you:
- Get injured and can't run the business for a period of time
- Fall ill and can't run the business for a period of time
Income protection insurance covers you for income loss during this time. A specialised 'business expenses insurance' can cover the fixed costs of your business during this time too.
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Example: How does income protection for business owners worsk
Imagine the following scenario:
You are away on a well deserved vacation and are having the time of your life with your spouse and kids. You are out on a ski trip and are thoroughly enjoying the joys of skiing. However, one second you are on the slopes and having a great run, whereas the next second you find yourself tumbling down due to an unfortunate accident. You get off easy with just a broken arm and leg to show for your fall.
The consequence of an unexpected injury
this means that you will be unable to go into the office for several weeks while you are recuperating. Since you will not be working, it also means that you will not be able to draw a salary from the business. Hence:
- How do you expect to meet all your financial responsibilities if you are out of commission for some time?
- Do you have enough savings to last you for the few weeks or months that you will not be bringing in an income?
The business might be put on hold
Whether or not you have been through a similar situation, it is necessary to think about these important questions. If you do meet with a serious accident that leaves you bed-ridden for several weeks, then you may not be able to run your business in that time. You will you feel the financial strain as you will not be able to draw a salary from your business, but your business could suffer greatly if there is no one to run it. In such a situation, income protection insurance can be a great resource to turn to.
What type of benefit is offered by income protection in the event of an accident?
Income protection insurance can provide you with an income that is equal to 75% of the income that you earn from your business. If you are unable to work due to any reason, then the benefits from the insurance policy can be used:
- To pay off your medical bills
- Meet your daily living expenses
- Take care of some business expenses if need be
If you can still work in a limited capacity you can get covered too
Income protection insurance does not just protect you in the event of total loss of income. It also protects you in case of partial loss of income. Therefore, if you cannot contribute to your business in the regular manner but can do some other job that pays you a lesser salary, then the difference in the salaries will be covered by income protection insurance.
Income protection with business expenses cover
In addition to protecting yourself and your family from loss of business income due to unforeseen circumstances, you can also use income protection to keep your business going in these situations. There are many types of additional covers that can be purchased along with income protection.
If you decide to add a business overheads cover to your income protection policy, then you will get enough money from your insurance so as to meet the regular fixed costs of your business. With the right amount of income protection insurance in place, neither you nor your business has to suffer in the event of any disability that leaves you unable to work.
Business expenses cover
Any business that is thinking about taking out business income insurance cover needs to do the same as an individual would do in terms of comparing plans and providers to see how much it will cost and what will be covered. It is worth bearing in mind that business income insurance is normally offered not as a standalone plan but as part of a combined plan with other business services. There are a number of packaged or combined policies that this could be a part of, so businesses will need to consider what sorts of services are going to benefit them.
There are a number of things that will normally be covered with the business income insurance element of a business policy, and this includes:
- Projected profits: Although the ability of a business to continue making profits can be seriously hampered following a disaster, there will most likely be financial records indicating what the profits would have been if property damage had not occurred. Business income insurance will normally cover profits that you would most likely have earned had the damage not been caused, and this is worked out by assessing past financial records.
- Operating costs: Even though business may have come to a standstill for a while due to the damage caused to the property, your business may still incur certain costs such as utilities. Your business income insurance cover will normally cover these costs.
- Expenses for relocation: If your business needs to relocate temporarily whilst repairs are being carried out to the damaged building, you could find yourself facing a variety of expenses. Some business income insurance plans will cover these expenses and costs as well.
Of course, the actual coverage can vary from one policy to another so before you take out income protection for a business you should make sure you check the policy details carefully to determine what is and is not covered. You can then make a more informed decision with regards to which of these plans is going to be best suited to the needs of your business.
Thing to look out for when choosing income protection
There are a number of different things you need to look at when you are choosing business income insurance cover. You should compare a range of plans to try and boost the chances of getting the right plan at the right price, and some of the areas you should look at include:
- The cost of the cover: Outgoings and expenses are things that all businesses need to be mindful of in the current climate. Comparing the cost of cover for business income insurance will help to ensure that you find a plan that is competitively priced and fits in with your business budget.
- The features of the plan: You should compare plans carefully to see exactly what the features of the income protection element are and what other services the income protection cover for the business will be bundled with.
- What is covered: You should check carefully to see what is and is not covered by the business income protection element of the plan, as this will enable you to make a more informed decision.
Determining the right amount of income protection for business owners can be quite tricky as you have to account for salary as well as business profits when computing your total income. Since business profits can vary significantly from time to time, it is important to reach the right figure so that you are adequately covered through your income protection insurance.