Recent research by the Cameron Research Group* suggests that small businesses (employing less than 19 people), which make up ¼ of Australian businesses, are still worryingly under-insured against sickness or injury of their principal.
- More than half of small business owners have no income protection insurance,
- More than 90% of small business owners have no business expense protection.
While Australians are generally good about insuring their car, and to a lesser extent their household contents, far too few have adequate protection against the risk of something happening to their most significant asset – their ability to earn an income over their working lives.
The Cameron research suggests that perceived or real complexity of business insurance may be why small business owners are so exposed, particularly owing to:
- Confusion between general insurance and business interruption cover - thinking that they are covered in the event of an ‘interruption’ to business resulting from their own sickness or accident;
- Complexity of life insurance overall.
This year’s research also suggests some confusion around the options available to choose waiting periods that suit business cash flow needs, such as one typical comment:
“…with income protection insurance it doesn’t kick in for 6 months, or something like that….forget it…”
Based on the research findings we recommend that all small business owners:
1. Make sure they properly understand what their existing insurance covers them for and what it doesn’t.
2. Make sure they properly understand the range of waiting periods available and choose one that balances between the business’ cash reserves and its ability to pay the premiums.
3. Make sure they fully understand what role any partner they might have in the business plays, and that they properly understand what happens to the business if they are unable to perform those functions.
While adequate business insurance protection can be bought directly from insurers, the research found that most small business owners realise their expertise lies in their business rather than in insurance and prefer to seek professional advice to manage their business risk.
If you find yourself in that category and suspect you may not have adequate protection against the risk that something happens to your health, please don’t hesitate to book an appointment to see our Partner – Wealth Consulting, Michael Rees-Evans.
* Cameron Research Group: “The Australian Small Business Market for Financial Services: 2012”