Australia’s more than two million small businesses make an enormous contribution to our communities and are the backbone of our economy.
Yet, according to a MetLife study almost half (47 per cent) of small business owners are exposing themselves, their families and employees to the financial impact of illness, injury or even death through lack of insurance cover.
Here are seven key things that every small business owner should consider when thinking about their insurance.
1. Protect your most important assets
Your most important assets are your family, your employees and your ability to earn an income. Small business owners are notoriously hard-working and put their hearts and souls into the smooth running of their businesses. With so much on the go, it is understandable life insurance won’t always be high on a long list of priorities.
However, ABS statistics show 5.3% of Australians experience at least one work-related injury or illness within a year. This is in addition to accidents taking place outside the workplace and non-work related illnesses. Any of these events could mean time out of the workforce and sudden loss of income, so it’s worth thinking about how your business would manage in this type of situation.
Additionally, offering life insuranceto employees can act as a compelling tool for attracting and retaining top talent, and could be a highly competitive benefit!
2. Understanding different types of cover
It’s important to understand the different types of cover available for both you and your employees. For instance, income protection, trauma and TPD can protect your income by providing a regular lump sum if you become sick or injured.
Life insurance provides a lump sum benefit for your dependents should you pass away or become terminally ill. Key person insurance (also called key man insurance) covers against lost revenue and assets if you or a key person were to pass away, or became unable to work due to disability or illness.
3. Adapt your cover as things change
Your cover should adapt and change in line with the changes in your business and your life stage. For example, if you have just started a family, you may want to think about taking out life insurance or increasing your amount of cover.
However, if your children are older, you may wish to reduce the level of cover when they leave home. Regularly assessing your situation can help reduce the chance of being under, or even over insured.
4. What’s your financial contingency plan?
Of course, every business will have a different situation but it’s crucial to have a plan mapped out should the worst happen. Our research shows many SMEs have not given much thought to how they would maintain their financial independence and protect their families if they could no longer work.
In fact, only 16% of SMEs have a financial back-up plan in place. More than half (59%) expect they would have to fall back on savings, or sell assets and 35% said they would have to reduce their lifestyle and spending.
As far as their business was concerned, most respondents without life insurance said they would have to temporarily close their business, or rely on their employees to run it. Some say their business has enough capital to survive, while others would have to fall back on family support.
5. What’s important to you?
When considering your options think about what matters to you most and use that as a starting point. In our research business owners emphasised the importance of safeguarding their lifestyle, family and business.
After price, protection for the family, and the ability to tailor cover to suit their own needs, were the greatest considerations. Convenience was also an important factor, with respondents valuing products that were easy to understand and use with simple, straightforward claims processes.
6. Ask around
Seeking professional advice is always a good idea when reviewing your insurance. Our research shows small business owners consult a variety of sources for financial information. These include independent financial advisers, accountants or lawyers, brokers, internet forums, banks, friends and family. The research also showed that SMEs found using a broker saved time and gave them peace of mind.
7. Where to find more information
There are a number of educational resources small business owners can use to find out more about their insurance options. These include here and here.
Deanne Stewart is the CEO of MetLife Australia.
