Income protection for business owners, by Jordan Jujnovich, Finsol Northland
In this article we will look at the two types of income protection available to business owners and discuss each as a tool to protect income and revenue.
Business-Owned Key Person Cover- The nature of small and medium enterprises is such that the business owners underpin the entire operation. Remove them from the equation for one month, three months, six months and beyond; and the cost of a suitably experienced replacement to come in and maintain profitability wreaks havoc on margins.
This is where Key Person Cover comes in. In the event a key person is unable to work, regular monthly claim payments are received by the business entity to cover lost profit and/or the cost of a locum. An adviser well versed in business risk will be able to look at your financials, discuss your business goals and operation and make recommendations on how best to ensure business operation is not hamstrung in the event of key people being unable to work. With a business that can continue to operate in your absence, you will then be able to continue to draw your usual income throughout your absence.
Personally-Owned Income Protection- Personally owned income protection is just that. Policies are owned, and claim payments are received, by you as the policy owner. For the self-employed these policies are an area which should always be handled by a specialist. They have their finger on the pulse regarding the limitations of each policy for a business owner, especially when it comes to offsets.
Offsets are where an insurer looks at income being received while incapacitated and reduces your claim payment by that same amount. For a business owner this can mean that in the event a business continues to operate in their absence, and income is drawn then no payment is forthcoming from their insurer.
These policies are almost always offset by ACC too. Specialist insurers offer personal policies designed to work with ACC and continuing shareholder income, however these policies are only available through independent advisers.
In the Far North, we are lucky to have the team at Finsol offering fees-free advice in this space. They have built a reputation on advising business owners about how best to manage the risks their businesses and their households face in the event of being unable to work. They offer continuing support throughout the life of any policy and play the role of advocate for clients at claim time, removing the burden of having to deal with an insurer at a time when your focus should be on your recovery. Their website should you wish to reach out, www.finsol.co.nz