Small business, big risks

Income Protection Insurance

With business and personal debts to their name, business owners have a lot of reasons to protect themselves financially. Income Protection Insurance can replace up to 80% of your income if you can't work due to illness or injury, so why are so many business owners uninsured?

When you’re a business owner, you pour your heart and soul into your business. And why wouldn’t you – it’s yours! But what many business owners fail to think about is the vulnerability of their financial situation & need for income protection insurance.

Having so much at stake, both emotionally and financially, might be great for motivation. But it’s not so great if something happens to you and you can’t work.

And it can be even more devastating if you’ve got a family depending on you.

Bridge the protection gap -According to a 2006 survey by the Investment and Financial Services Association (IFSA), less than half of small business owners feel they have adequate cover (1). So if they know they’re not properly covered for income protection, why aren't they doing something about it? One of the reasons is that there's a perception that income protection insurance is too expensive.

In the IFSA survey, 95% of small business owners said they were aware of what income protection was, but 56% thought it was too expensive. So cost is obviously a big reason for the lack of protection.

Tax Deductions & Packaging options can reduce the costs - The fact 47% of respondents did not know that income protection premiums were tax-deductible shows there’s a lack of understanding around how much insurance actually costs.

Business expenses insurance – which covers your fixed business expenses like rent, electricity and non-income producing staff wages if you can’t work because of sickness or injury – is also tax-deductible.

So by combining these two types of policies you can cover your work and personal expenses. And potentially reduce your tax bill.

How much does it actually cost?

Example

A 39-year old male doctor who earns $120,000 pa. He takes out:

  • an income protection policy to cover 75% of his income (or $7,500 per month), and
  • a business expenses policy to cover $10,000 per month of fixed business expenses.

His total premium before tax is $2,660. But because his premiums are tax-deductible, his after-tax premium reduces by 41.5% (his marginal tax rate) to $1,556. At about $30 per week, that’s the equivalent of a take-away pizza each week.

Source: Asteron Life Limited, based on a non-smoker taking out an Agreed Value Income Advantage policy, and an Indemnity Contract Business Expenses policy, both with 30-day waiting periods and stepped premiums paid annually.

Get the cover you need

At McKenzie Ross we tailor the advice to meet your individual needs. We deal with all the major life insurance companies in Australia we can help you get the right cover, and make sure it’s structured in a way that makes it as cost-effective as possible. Contract Cameron Ogle today to discuss you Income Protection insurance requirements today.

Everyone needs insurance. But few people need it more than small business owners. So make it your business to get the advice, and the cover, you need.


This material is not intended to constitute personal advice, and must not be relied on as such. This information has been prepared without taking into account a potential investor's objectives, financial circumstances or needs. Before making a decision based on this material, a potential investor should consider the appropriateness of this material having regard to their objectives financial circumstances and needs. A potential investor should consider obtaining independent advice before making any investment decision.

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(1) ‘Investigating Income Protection insurance in Australia’ – IFSA, July 2006.