There are over two million actively trading businesses in Australia – and around 96% of these are small businesses often with just a husband and wife team or a few employees.
For many of these ventures, the business runs smoothly most of the time, and it makes running your own show exciting and potentially very financially rewarding. But things can rapidly unravel if something goes wrong – and recent studies show many businesses are underinsured.
According to industry research, up to 70% of Australian businesses don’t have adequate insurance cover in place. The threat of underinsurance ranges from inadequate cover for buildings and/or plant and equipment through to less obvious types of protection like business interruption insurance, which protects the venture against loss of profits if trade is temporarily halted through, say, a fire at the business premises.
I realise that insurance is often viewed as yet another cost small businesses must wear, and that’s understandable. The thing is, a business isn’t just a source of income, it’s also a valuable asset – and one that many self-employed people rely on to fund their future retirement. This highlights the need to have appropriate insurance in place.
The good news is that business insurance could be a lot more affordable at present than many self-employed workers may expect.
A recent industry study has found that over the past few months, competition in the insurance market has pushed down the cost of business cover. According to insurance group Austbrokers premiums across a range of different types of cover have fallen by an average of about 6%. That can make taking out insurance for your business more appealing, or, if your venture has cover in place, now could be the time to see if you can secure a better deal.
With a large number of insurers offering business cover it’s certainly worth speaking with several providers to get an idea of what’s a reasonable premium for your venture. The cost of cover varies in line with the nature of the policy and also according to the industry you work in and the size of your business.
Another type of cover worth considering if you are self-employed is ‘key person’ cover. This involves insuring the most important people in the venture for death and/or disablement – with a payout that can be used to pay off business debts.
While no one likes to think about their own mortality, the reality is that illness, injury or death affects business owners and their businesses just like it affects anyone and anything else. A personal tragedy can quickly turn into financial hardship particularly if business loans are secured by private assets like the family home – as they often are.
Note too, key person insurance can be taken out for a valuable employee, not just the owners of the business.
A Canstar report earlier this year found insurers OnePath and Zurich rated highly when it comes to key person insurance. You can download the report from the Canstar website.