Is your business underinsured?

Currently there are two million plus businesses actively trading in Australia and a huge 96% of these are small businesses. It is common for these to consist of a husband and wife team or just a handful of staff.

Owning your own business can be a hugely rewarding experience, allowing the freedom of ‘running your own show’ as well as potential financial benefits. However, with your business and personal finances so closely linked, the unfortunate reality is that if something were to happen to the business, it could significantly impact your personal life and family. Therefore, it is imperative to be prepared.

Recent studies have brought to light the issue of underinsurance in Australian businesses. Results show that up to 70% of Australian businesses don’t have adequate insurance cover in place1. This includes the obvious building and contents insurance all the way through to lesser known protection such as business interruption insurance which can provide a provisional cash flow if the business has to be temporarily closed (i.e. because of damage to the building).

When a problem occurs in a business, great difficulties can arise for the owner above and beyond the usual job loss worries. The difference is, unlike being an employee in a company, where you rely on your job as a source of income, owning your own business means that as well as a loss of income, you may also be losing an asset – one that you could be depending on for a secure and comfortable Retirement.

While many small businesses are confined by limited funds, appropriate insurance cover is an element that should not be sacrificed. Luckily, recent trends are showing reduced costs of business cover, as competition in the insurance space increases. According to an insurance group, premiums across a range of different types of cover have fallen by an average of about 6%2.

This means that now is an ideal time to get your insurance needs organised or if already in place, a great time to schedule a review to ensure the cover adequately reflects your business needs. Just remember, old or outdated policies may classify your business as ‘underinsured’, so it’s important to ensure your insurance is up to date and relevant.

A type of cover which can be very valuable is Key Person Insurance. This isn’t restricted to the just the owner, it may be any person who has a vital role in the business. This can provide cover in the case of death or injury to that key insured person. Funds can be provided to help with paying off debts, protection of revenue, ongoing business activity, hiring and training etc.

While considering worst-case-scenarios is not the most pleasant task, it is essential to have a plan in place to protect your business, yourself and your family if the unfortunate were to occur. It is not uncommon for small business loans to be secured by private assets (such as a family home). Thus, if anything were to happen, it also has the potential to affect your family’s security and future.

With so many options available it can be tricky to ensure you have sufficient and up to date cover for your business. A Financial Planner can help you assess the most appropriate insurance options and find the best solution for you.

1 Andrew Nock, Proprietor of Andrew Nock Valuers, 2011
2 Austbrokers
Source: Capstone Financial Planning