It pays to know how Life insurance works. Particularly when you work in small business. The reality is that if anyone relies on you financially, you may need some form of Life insurance.
Yet despite Life insurance being deserving of consideration by everyone and particularly small business, there remains a great deal of confusion around how the cover works and what it delivers.
Perhaps this is due to Life insurance’s complexity, the assumption that everyone is automatically covered through their superannuation or merely our preference for avoiding the topic of our own demise.
Add to the mix that there are different types of Life insurance to cater for individual circumstances and it can make figuring out the right cover to select seem like a walk in the park without a map.
What exactly does Life insurance deliver? Life insurance can provide a source of income for your dependants should you die, have an accident or become sick. There are five main types to cover a range of scenarios. The right cover depends on your income, occupation, age, sum insured, health, pastimes and family and business situation.
The 5 main kinds of Life insurance:
1. Business Expenses insurance: This is similar to Income Protection insurance but it’s designed specifically for business owners. It pays a regular benefit for a specific period to cover business costs if you (as a business owner) suffer a serious illness or injury and are unable to work.
2. Life insurance: Can provide replacement income for your dependants should you die. It pays a pre-agreed amount in a lump sum at the time of death.
3. Total and Permanent Disablement (TPD) insurance: Financial cover for permanent loss of work due to serious illness or injury paid in a lump sum.
4. Trauma insurance: Pays for critical illness and is delivered in a lump sum to cover medical expenses and ongoing recovery costs.
5. Income Protection insurance: Pays up to 75 per cent of your taxable income for a set period due to illness or injury.
So do you really need it? Life insurance can be a very good idea if you are a spouse or have dependent children. But you may also require a cover if you have dependent parents, are the sibling of a dependent adult or are an employer or business partner.
Life insurance can be surprisingly inexpensive if you choose direct cover through a Life insurance company that doesn’t spend money on expensive marketing campaigns and large commissions to advisers.
There’s a common misconception that everyone is adequately covered for Life insurance through superannuation. Ratings agency Canstar estimates 83 per cent of people sign up for the default death benefit covered by their super fund.
This type of cover can be cheap but there’s a downside. The Australian Investments and Securities Commission (ASIC) warns that the types of Life insurance and level of cover provided through super funds are usually limited.
ASIC also warns that if you move to a different super fund, your cover may end without notice, and Life insurance paid out through a super fund is often slow to be distributed.
But what can make an individual Life insurance cover most effective for a business is added protection against the loss of the business income.
In combination with Income Protection insurance which pays up to 75 per cent of your taxable income for a set period due to illness or injury, you can protect your company with Business Expenses insurance provided by NobleOak. This cover delivers a monthly sum to cover your fixed and recurring business expenses, including rent or mortgage interest payments, the salaries and superannuation of non-income producing staff, telephone, office supplies, and other costs.
It provides a monthly income stream of up to 100 per cent of your fixed monthly business expenses up to a maximum of $25,000 per month.
Most small business owners have credit facilities and NobleOak’s Business Expenses insurance includes payment of the interest component of any loans associated with the business.
It’s important to source Life insurance that is fully underwritten. This means the company comprehensively classifies how much of a risk you are, based on your age, occupation, sum insured, health and pastimes. These questions require you to answer truthfully but are succinct and are designed to ensure you know exactly what is covered in your cover from the outset so that you can feel confident at claim time. It’s also wise to choose an established Life insurer backed by global reinsurers for extra security.
Important information: This is general advice only. Please read our before applying and click here for information on cost savings. NobleOak Life Ltd ABN 85 087 648 708 AFSL No. 247302 is the product issuer.
*The first month free offer is available if you apply for cover before 31 August 2017. If you apply for cover before 31 August 2017, you will not start paying premiums until one month after the commencement date of the cover. This offer is available once only per new customer.
Kochie's Business Builders first published this article - visit kochiesbusinessbuilders.com.au for all the latest on small business and to sign up to their inspirational newsletter here.