If you run your own business then you know how fragile that existence can be – you live in fear and respect of the economy, in constant awareness to identify new clients and at a peak level of performance to maintain the client relationships you do have. However, as unpredictable as the life of a business owner can be, you’d never give it up to work your ass off for someone else again, instead you manage the risks and you keep that fragility at a manageable level.

One way of managing business risks is through insurance and if you have income protection insurance for yourself already you are well on your way to being protected. However, income protection will only look after your personal spreadsheet of bills and commitments if you were to become sick or injured and unable to work. As a business owner you need to think outside of yourself and to your business whose success is inextricably linked to your health and wellbeing, but which won’t be protected at all by your income protection insurance policy.

Instead you also need business expenses insurance, which is a type of policy specifically designed for business owners, and pays a monthly benefit to cover the fixed running costs of your business if you become sick or injured and are unable to work. Business expenses insurance will typically continue to pay a benefit for up to 12 months, after a waiting period of between 14 and 90 days. The cover is also specifically linked to your ability to work as the business owner, and does not protect your business from an external even such as fire or water damage which interrupts business operations – that is where you should also consider business interruption insurance.

Choosing a Cover Amount

Choosing the cover amount of any insurance policy is always a tricky balancing act where the cost of the premiums increases as the level of cover increases and you have to weigh the cover you can afford against the cover you feel your business needs. The cost of the premiums on your business expenses insurance is dependent on a number of factors such as your age and gender, in addition to the cover amount you require. For example, a 30 year old female hairdresser could be insured for a benefit amount of $4,615 per month, for a premium of $3.53 per day.

Each business is unique and the absence of the business owner will not have the same effect in each case, so as you consider your cover amount think about just how instrumental you are to the day to day running and earning capacity of your business – and now is no time to be modest.

Also add up the costs in your business of the following ongoing expenses which would need to be paid even if your business wasn’t bringing in any income:

• Staff salaries for those in non income producing roles.
• The rent or loan repayments on your business premises.
• Interest on business loans.
• Your utility bills such as phone, gas and electricity.
• Costs of leases for equipment and vehicles.
• Repair and maintenance costs.
• Accounting and audit fees.
• Advertising costs such as Yellow Pages.
• Business related insurance premiums.

While income protection insurance is a different type of cover, the two can often be packaged together to secure you a better deal. And if you are still worried about the cost of the premiums remember that in most cases they are tax deductible.

Benefits of Business Expenses Insurance

In addition to offering you peace of mind that you have protected your business against some of the biggest risks it can face, an important benefit of taking out business expenses insurance is that fact that it ensures that you have a business to go back to when you have recovered. For many self employed people they are the driving force of their business, and if they were sick or injured the business could collapse. However, business expenses insurance pays the fixed costs in your business so it can continue operating until you return.

Each insurer and insurance policy will be different so you will want to make sure that the policy covers the types of expenses which are ongoing in your business. If you do meet the eligible expenses criteria, then 100% of your expenses will be covered when you make a successful claim.

Imagine what a relief it would be to know that while you were recovering your business expenses were being looked after. As a business owner you know just how much hard work goes into just keeping your business running before you even see any clients and if you’re not there to keep the business running it can run straight into the ground, taking all of your hard work, your clients and your credit rating with it.

Inclusions of Business Expenses Insurance

If you’re still not sure how much cover you need and whether your business expenses will be eligible, speak to your financial adviser who can help you work out exactly how much cover you need, as well as assess your current financial situation to help you choose an insurance plan which suits your business needs, and is affordable.

Business expenses insurance will pay a benefit on a successful claim for up to 12 months to give you time to recover, and decide whether you will return to work, sell or close down the business. The waiting period from the time you claim to the time you receive your first benefit payment will usually be around 14 to 30 days, and is a variable you can adjust in your own policy.

To make sure your benefit amount is always relevant and in line with your business’ needs, your insurer will regularly review your policy and make increases to the benefit amount in line with the Consumer Price Index. This ensures that your benefit keeps up with the rising cost of living, but it is also important that you perform your own regular reviews to make sure that your chosen insurer and policy are the right fit for your growing business’s needs.

Another important feature to look for in business expenses insurance is the ability for you to return to work for a certain number of hours each week – typically 10 hours per week – without it affecting your benefit payout. This allows you to keep in touch with your staff and clients and assure them of the business’ security, as well as keep yourself up to date with business operations so you are ready to go upon your return.

Business expenses insurance policies can also include a specific injury benefit and a crisis benefit which will guarantee payment if your suffer from one of the specific injuries or medical conditions listed in the policy. Other policies will also include locum cover to reimburse you the cost of employing a locum to run the business in your absence.

An Example of Business Expenses Insurance

Let’s take the example of a tradesman, whose business relies heavily on him because he is the primary working contractor. If his total business income is $9,000 per month and his expenses are $3,000 then he can take home a profit of $6,000 income each month. In his personal expenses, the tradesman has a total of $4,500 of monthly bills and is able to put aside the remaining $1,500 in a savings account.

If the tradesman is injured and can’t work, he will make a claim on his income protection insurance policy, which will pay out 75% of his income, and 75% of a $6,000 income is $4,500. The tradesman’s income protection insurance will only just cover his current monthly expenses, but doesn’t leave anything spare, especially after adding in his recent medical expenses from his injury. It doesn’t look good, but his personal finances can survive for a little while until he is back on his feet.

However, on the business side there are still $3,000 of fixed monthly expenses to be paid, and there is no benefit left from his income protection insurance. Without business expenses insurance the tradesman can’t make the repayments on his ute, he can’t make the repayments on the equipment loan he took out to buy the tools he need to complete his jobs and his car and equipment will be repossessed and his loans called in, ruining his credit rating. Then there are the premiums for his public liability insurance which will lapse and leave him open to risk, and mean it will be more expensive to apply again when he can afford it.

Without business expenses insurance the tradesman’s business is not going to be there for him when he recovers from his injury, and worse still, his credit report will be littered with black marks making it hard to start over. The money he has in his savings account may be able to cover his business expenses for a few months, but won’t be enough for his full recovery time, plus without an emergency fund he is at risk again personally.

If you are injured or fall sick and you are a small business owner, you don’t need financial stress making your recovery harder and longer. Instead you need to be able to rely on business expenses insurance to look after your business, while you look after yourself.

In this example the fixed expenses the tradesman can include in his business expenses policy include:

• The lease payment on his ute.
• The repayments on his equipment finance.
• Business insurance premiums.
• The salaries of permanent staff.
• Ongoing advertising cost such as Yellow Pages.

For a tradesman fixed expenses would not include stock, materials or payments to sub contractors as these expenses are subject to the tradesman working in the business, which he is not.

How to apply for business expenses insurance

When you apply for business expenses insurance you will likely need to undergo a medical examination to help determine your needs and your premium costs. Your financial adviser will also be able to help you determine all of the fixed expenses in your business and which are eligible for coverage.

You will then need to choose an insurer who specialises in offering business expenses insurance to businesses just like yours. You want an insurer who is familiar with businesses of your size, your structure and in your industry so that you can ensure their products and policy features meet your needs, and they can understand and answer any questions you have in the application process or during your policy term.