Protection Strategies for our Self-employed clients
Business owners, just like the rest of us are vulnerable to events out of their control. In most cases however the risks involved by running their own business are greater and more complicated and as such their Personal Insurance arrangements do not adequately meet their overall needs.
In my experience when dealing with self-employed clients, they will almost always prioritise insuring their physical assets like motor vehicles, plant and equipment but fail to recognise the importance of insuring themselves and other important people in the business against unexpected events such as death, disability, illness or injury.
There are three basic strategies that self-employed people should be considering when looking to protect the success of their business and below I will provide a brief explanation on each.
Business owners should consider using insurance to protect their personal and business assets. If they have used debt to start a new business then steps should be taken to ensure that and any key people in the business have suitable insurance arrangements. The Asset Protection strategy allows the business to reduce debt or protect any personal or business assets used as security if the owner or a key person dies, becomes totally and permanently disabled or suffers a serious illness.
Business owners should also take steps to identify those who play an important role in the ongoing success of their business are make insurance arrangements in the event of their death, total and permanent disability or being diagnosed with a serious illness. The insurance proceeds from the Revenue Protection strategy can be used to offset a reduction in revenue as a result of either temporarily or permanently losing a key person or assist with the cost of finding a suitable replacement.
The Death or Total and Permanent Disablement of a business owner can result in the downfall of an otherwise successful business. Business owners that share equity of a business with other owners should consider Ownership Protection aimed at providing the continuing owners or interested parties with sufficient cash reserve to transfer the departing owner’s equity to the continuing owners. A Buy-sell agreement drafted by a legal professional agreed to by all owners needs to accompany the strategy for maximum effectiveness.
It is important to remember that these strategies are most effective when the right party receives the benefits at the right time. Financial advisers need to educate their self-employed clients on the importance of considering and implementing the right business protection strategies for their circumstances in order to minimise the financial impact of events that are beyond their control.
Feel free to reach out to us to discuss your business protection needs.