There are two million businesses in Australia and 96 per cent of these are small, family run operations. For the people involved, these ventures are often an excellent investment – one that funds family life, pays the home loan and forms the basis of retirement savings. But unlike their larger corporate counterparts, small businesses are often dangerously exposed to unexpected events that can derail the owners’ financial wellbeing.
In many small enterprises one person plays a critical role in the ongoing success of the venture. If anything were to happen to this key person – be it ill health, injury or even death, the day to day running of the business could be severely impacted. At worst, the business could fold altogether.
There is a range of business insurance products that are designed to protect small enterprises from this sort of risk. The premiums may be seen as yet another cost to wear. But the protection these policies provide could be the lifeline that keeps the business going if disaster struck.
‘Key person insurance’ for instance offers a payout if something prevents a nominated person continuing on in the venture. And when it comes to small businesses, you don’t have to be a budding Bill Gates to be regarded as a key person. It could be Mum doing the admin and the accounts in a role that keeps the cashflow ticking over on a daily basis.
If your business is structured as a partnership, the success of the enterprise could be severely impacted if something where to happen to one partner. A type of cover designed to protect against this risk is ‘business partner insurance’. If one partner dies, or simply decides they no longer want to be involved in the venture, this type of cover can provide cash funding to the surviving partner. The money can be used to buy out the remaining share of the business to ensure the survival of the venture.
While these types of policies play a valuable role, the downside is that they can’t generally be purchased off the rack. Unlike, say, car insurance, which drivers can readily arrange online after answering some simple questions, business risk insurance is tailored to your particular enterprise. Premiums vary widely depending on the level of cover, the nature of the enterprise and, of course, the insurance company providing the cover.
To ensure you have the policy best suited to your business, you’ll need to liaise with your accountant, insurance broker and even solicitor.
As the festive season approaches, lots of small businesses will be in their peak trading period with little or no time to spare to arrange insurance. But once the activity has died down, perhaps in the New Year, it’s worth thinking about the risks your venture faces and the protection you can put in place to reduce these risks.
A good starting point to see what’s available is the Business Life Insurance star ratings report recently compiled by research group Canstar. The report rates 13 different insurers, giving the highest 5-star rating to Zurich, OnePath and AIA across a range of cover. The report can be viewed at www.canstar.com.au.