Lawrence Kennedy, Director of Surety Life, explains the importance of having a life insurance policy when running a business.
Owning and running your own business is often complicated. Have you ever considered how much more complicated things could get if the business does not have a comprehensive exit plan for unplanned events such as death or total impairment?
The main purpose of a business is to provide income and profits for the business owner to pay for the cost of living and wealth creation. A profitable business may also employ staff who are dependent on the business for income.
What would be the impact if a business owner could no longer manage the business or do the work required to generate income and profits for a business? Unplanned events such as premature death or permanent disability could be financially disastrous for the business, the business owner and staff.
An insurance policy which pays out on death, total and permanent disability and serious illness could cover one or a number of possible scenarios outlined below.
Loss of sales income and profit protection
The policy provides money and time for any changes that might be required. An insurance payout could prevent losses and costs increasing at a time when the business can’t afford them.
Cost of living
The policy pays income to the business owner and family to pay for the cost of living. Without this the business owner and family may not have enough money to live and make home loan repayments.
Personal debt repayment
Money is paid to the business owner and family to pay off home mortgage and investment property debts.
Money is available for hiring a replacement person in the business so that the business can continue to trade.
Business valuation payout
A payout is made for what the business was worth prior to the business owner’s death or disability. It takes a lifetime of blood, sweat and tears to build a profitable and sustainable business. This could all go up in smoke if something happens to the business owner.
Multiple-partner business payout
If the business has multiple partners or is a family business with multiple family members working in the business, a payout is made to purchase the business from the exited partner or family member. For example, partner A buys the business from partner B who has died. In a family business the insurance can help children purchase the business from their parents.
Business debt repayment
Payout for borrowing costs, loan repayment and money to pay other creditors to the business.
Every business owner’s situation and business structure will be different. To ensure you have the right life insurance cover for you, a financial adviser will need to complete a needs analysis for the types of insurances required and the levels of cover required. You can contact your financial adviser or Surety Life for more information.
Surety Life is a specialist insurance business that provides small business owners and professionals with risk management advice and solutions for unplanned events such as premature death, total and permanent disability and serious illness.
Surety Life is co-owned with a director of Wymark Speciality.
Lawrence Kennedy, Director, Surety Life Pty Ltd