Business Insurance (often referred to as Key Person Business Insurance).is vital. Is your business prepared for the worst case scenario? Are you prepared to lose it all? It is essential for business owners to protect their business operations. Your livelihood and that of your family is depending on it. There are numerous vehicles that can help you to protect your business. Business Liability insurance, key person protection, buy/sell insurance and succession insurance are all essential in protecting your business.
Business Liability Protection
This insurance protects the business guarantors. By obtaining this insurance you can protect the total and partial liabilities of the business as well as shareholder and or partners. Premiums are not deductible and are paid by the business. The funds that are paid out by liability protection are non-taxable.
Key Person Insurance
You may have a key person that if they moved on would hurt your business. Key person insurance will prepare you for this event. These type of people have special training that will be hard for your business to replace. In order to determine the need you will need to calculate the amount of time would be required for the business to reestablish prior levels of revenue from before the key person left the company or passed away. The insurance will provide a means of providing cash during tough times as your business replaces a key employee. It will help you to insure yourself from the loss of future profits. Additionally it will help to lower the liabilities of guarantors.
This insurance can be used to cover a number of people including the sole trader (yourself or your spouse), other partners or joint owners, the principal owner of a one-man company, employees or directors, and/or a key person outside of the business. One advantage of key person insurance is that the premiums are normally tax deductible though you will likely be required to pay taxes on benefits paid out since they are normally assessable income.
Income Protection for Business Owners
When owning a business you need to consider your livelihood in the event of injury or disability. Income Protection will work to give up to 80% as a business owner or employee in the even that they become disabled and are not able to work due to sickness or injury. Payments will be made monthly and according to the waiting period (14, 30, 90 or 720 days) and benefit period (2 years, 5 years, or to age 65) selected. You can usually choose between agreed benefits or indeminity options. Premiums can be paid by the business or the individual with the policy being owned by the insured party. Proceeds are assessable and premiums are deductible.
Business Overheads Protection
As a business owner you need to protect your business in the event that you are sick or injured. With this insurance you can alleviate your worries. This insurance is designed to cover the everyday cost of running a business for 12 months if you are sick or injured. Business overhead protection will pay you monthly after the waiting period of typically 14 or 30 days. These benefits are tax deductible and assessable upon distribution.
Creating a Succession Plan With Insurance
Is your business prepared to meet their outstanding debts in the event of the death of the principle? Often the capital for a business comes from the business principles and from lending institutions such as banks. In the event of the death of the business principal the bank will want proof that they will be repaid the outstanding debt. Sometimes the bank will determine that the loan is not secure and call in the debt. That can cripple a business and destroy the income flowing into your family from your business. Surely you have considered these things before but since you are here reading this you are likely like many other business principals who don’t take the necessary steps to protect their business and their family in the event that they should pass away. If you are in business with a partner, a business succession (buy/sell) agreement ensures a fair outcome in the event that one because disabled or passes away. You would not want to be the one left to deal with business succession if such an agreement had not been reached. It could cripple your livelihood.
Buy/Sell Insurance is a tool to help protect your business should a life changing event arise. It is an agreement amongst business partners that requires the surviving partner(s) to purchase the partner’s interest based on a pre-determined life altering event. Buy sell insurance usually pertains to the partners passing away, suffering a stroke or a heart attack, physical disablement, bankruptcy or retirement. This accord is usually backed by insurance on both of their lives which will provide funds for the remaining partners to obtain the shares of the deceased or effected partner through purchasing them or by purchasing their interest from the deceased family. Rather tahn spending dollar for dollar the business or personal capital (if there is one) trying to buy out a departing partner(s) or create a new loan to pay for it costing more with interest, insurance is the cheapest 'pre-payment' method.