02
Apr

Business expense insurance (income protection insurance for your fixed business expenses)

Building a vibrant, profitable business, such as a dental or medical practice, requires a lot of hard work and resilience but it’s very rewarding. If you own and manage a business, you’ll agree that your business is your baby. It’s also most likely your livelihood and your family’s largest asset.

Safeguarding and protecting this important, valuable asset is critical because it’s impossible to predict if, and when, something unforeseen will happen to you. If you were unexpectedly struck down by an illness or injury, chances are your business would suffer. This risk is too serious to dismiss.

Fortunately, the impact of a sudden, prolonged illness or injury on your business can be minimised and prudently managed by taking out business expense cover, which is likely to be more affordable than you may think.  There really is no reason to leave yourself, your staff, clients and loved ones unnecessary exposed.

What is it ?

Business expense cover is a type of income protection that helps to pay for your business expenses if you can’t work due to sickness or injury. It is ideally suited to small businesses with up to approx five employees.

Similar to income protection, it provides an ongoing monthly income (commonly up to $40,000 per month, for a maximum of one year), but instead of replacing your salary, it covers your fixed business expenses.

A total or partial benefit is generally payable where a business owner is unable to :

  1. Perform at least one of their important income producing duties;
  2. Work for more than 10 hours per week; or
  3. Generate more than 20% of their share of pre-disability business income.

This means the regular, fixed operating costs of running your business are taken care of while you’re on the road to recovery.

Small business owners are susceptible to mental health challenges, particularly when bills and other expenses loom.

Why is it important ?

Sickness and injuries are part of life and occur all too frequently. But it’s not only extreme injuries and illnesses that can leave you incapacitated. For example, glandular fever is a common condition that can take up to six months to fully recover from.

If you became sick or injured and unable to work, could your business survive, let alone thrive? What resources could you call upon to keep your business afloat ?  One of the main benefits of business expense cover is that it helps to make sure you have a business to go back to once you’re ready.

Small business owners are susceptible to mental health challenges, particularly when bills and other expenses loom.

In these circumstances, knowing you have a monthly payment to rely on can relieve the financial strain. It means you don’t have to find other ways to fulfil your on-going commitments.  Unlike other types of insurance, business expense cover can be tax deductible too which is an added benefit.

What can it be used for?

Monthly benefits can be used for expenses like rent, principal and interest payments on business loans, utility bills, monthly insurance premiums, wages for non-income generating employees, motor vehicle or equipment leases, accounting fees and repairs/maintenance.

Affordability of business expense insurance (indicative example only)

Depending on individual circumstances, around $2.74 a day (at the time of writing) can provide business expense cover of $10,000 per month and the premium may be tax deductible. When you add up the fixed operating expenses for your business, this is probably a small
price to pay. ³

Notation references

  1. https://www.aihw.gov.au/getmedia/fe037cf1-0cd0-4663-a8c0-67cd09b1f30c/aihw-aus-222.pdf.aspx?inline=true. Source: Australian Institute of Health & Welfare, 2018. Australia’s health in 2018
  2. http://chronicpainaustralia.org.au/index.php
  3. The amount is based on  Business Expense cover for a 40-year old, non-smoking male accountant, living in NSW, with a 30-day waiting period, 1-year benefit, paying a stepped annual premium. Rates are current as of March 2019.

This information is current as at March 2019. This article is intended to provide general information only and has been prepared without taking into account any particular person’s objectives, financial situation or needs (‘circumstances’). Before acting on such information, you should consider its appropriateness, taking into account your circumstances and obtain your own independent financial, legal or tax advice. You should read the relevant Product Disclosure Statement (PDS) before making any decision about a product.