Business Expenses Insurance will pay for your fixed business overheads if you are unable to work due to sickness or accident. It is not a loss of profits type of cover where you can insure against your lost profits if you have a fire or flood. It’s not that; it is to pay your fixed business expenses of a non-capital nature if the person who is insured cannot work.
Why would you have Business Expenses Insurance?
Usually, small business owners who are responsible for generating most of the income and expenses would have this type of cover. If the owner has to stop working then in most cases their income reduces or even ends but the fixed costs such as Rent, Rates, Insurance, Mortgage Interest, Phone, Power etc. all still need to be paid, but unless there are substantial cash reserves things can go downhill pretty quickly. Think about how long your business would last if no new income came in, and you had to use reserves to pay for your contractual commitments. How long would it take before you ran out of funds? 30 days? 60 days? 90 days? Longer? Most small businesses would be in serious trouble within 90 days. Remember, if you have entered into contracts such as business loans, vehicle leases and premises, you can’t just walk away; you still need to pay for these out of business cashflow or reserves, or a good Business Expenses Insurance policy is a very cost-effective way of paying for expenses when you need it the most.
Avoid the fire sale price
Have you ever seen an ad in the paper where it says something like “due to ill health, the owner needs to sell”? Firstly, whoever put that ad in the paper may as well put “desperate business owner selling at fire sale price”. If your business can remain intact and you don’t have to bail out because creditors are knocking on your door, you are going to have a much more graceful exit and sell your business or more, than if you had to bail out at a fire sale price.
An actual claim case
It reminds me of a case a few years ago, where a self-employed A Grade mechanic fell off the ladder at work and to make a long story short, he needed an operation on his shoulder and was out of work about four months and it was quite a long recovery time. He could not work at all and couldn’t find a someone to cover for him, to keep his business going, so his business pretty stopped. He had leased a building in an industrial area and also had some minor contractual agreements that he needed to pay each month, but with no business income coming in, he would have had to use his savings and cash reserves to pay these expenses. Fortunately, he had business expenses insurance, and his claim was approved, and he received his first payment after his initial wait period of 4 weeks. All his expenses were paid and until he returned to work which took around four months. Believe it or not, he claimed again about a year later, and his business expenses insurance kicked in, and his claim was for about another six months.
What about ACC?
ACC is about personal income loss; it’s not about paying for your business expenses or any other business-related expenses. Remember also that ACC is for accidents only and does not provide cover if you are unable to work due to sickness. If you want to make sure you have cover for accident and sickness, then you should seriously consider having personal income protection insurance.