This month, I recommend a refresh of your insurance policies to make sure you are getting the best value for money and that you have adequate coverage.
I write this post with a big smile on my face and a clear message that I am no financial advisor – this is intended as a prompt for you to take a look at what you have or don’t have. Get some advice before you take action, ideally from someone who isn’t trying to sell you something!
Insurance is something I have always wrestled with. As the definition says, you pay a premium to provide compensation for losing something. The big question is, will you lose it and what are you prepared to pay to have guaranteed compensation if you do? It’s a balancing act between the amount you will pay in premiums, with the risk of never making a claim, versus the impact of the event happening and not having insurance. Oh, to have a crystal ball!
When faced with a tricky decision, I like to do peer research. I discovered that my peers have a variety of approaches to insurance. Some are at the top-end of being insured for everything, including their pets. Others put the money aside into a savings account instead of paying the premiums, and others totally disregard it. My research led me to conclude that it really is very personal, so you have to be clear about what level of insurance works for you.
As a small business owner, here are some questions to ask yourself each year when you refresh your insurance. The key things you can insure are your life, your health, your stuff, your income and your business.
Take a few minutes to consider the impact of life insurance.
- When you die, it is one of life’s certainties after all, what and who will you leave behind?
- Will you need to cover debts?
- Will you need to provide a secure financial income for those around you?
- Do you want the biggest funeral ever, that no-one in your living family could afford to pay?
- Do you want to leave behind a legacy?
These are some of the questions to ponder when considering life insurance. Then you have to make the decision about what you pay it with; your superannuation fund or take out a separate policy? There are also variations on life with Total and Permanent Disability and Trauma insurance options. It’s worth cross-checking what is available and working out your appetite for risk – what can you live with (sorry bad pun) and what do you want to be compensated for?
I find it totally overwhelming when the options are laid out in front of me, so I am keeping this really basic. This is like a ‘back of an envelope’ guide to getting more information. It might be a good time to review your level of cover, who your beneficiary is and if you are getting good value for money. Also have a look to see if you are paying an ‘Advisor Fee’. If you are, make sure you are getting advice. We negotiated a refund of an advisor fee because they had not been in touch for years but had still charged us. Sometimes regular checking pays!
Next is health insurance. Do you want to be able to choose when, with who and what treatment you will receive if you need health care services?
If the answer is yes, then get ready to pick which treatments you want covered, for how long and how much you are prepared to pay each month to ensure you have access to them. I love asking friends about this one. Some struggle to make ends meet and still have private health insurance, others in the same situation say, “No way”. Maybe take a look at your family health history. Also, make sure you understand any tax implications. If you are on a high income it might be beneficial to take out private health insurance. Again, if your income situation changes, then check if it is still relevant.
General or Car Insurance
Insuring your stuff; ask the question, “How much does it cost to insure specific items”, then look at any excess on the policy. I had a $400 data projector on my business insurance that is now worth nothing. It’s important to review any specified items to check if they are worth more than the total of the excess and the increased premium to have them listed. Also, it is important to check items such as jewellery, as their value may have gone up, therefore requiring an updated valuation certificate.
As IT gets cheaper to replace and insurance premiums seem to rise, it is worth doing a few calculations. When it comes to big stuff like our house being insured, I find these decisions much easier. I personally think that the cost to rebuild my house is worth all the insurance premiums, but check what you are covered for. Are you paying for all the bells and whistles but don’t really require them? Or the opposite, when you bought the house you took out the bare bones but now you can afford to pay to cover more items?
This also applies to car insurance. What works for a single person might not be enough for a business owner with a family (e.g. ability to hire a car if yours is involved in an accident).
Income Protection Insurance
Income protection is a mind-bender for me.
- What happens if you lose your ability to earn money?
- Take a look around you for this one – who would be impacted?
- How much does it cost you each year to protect your income?
For business owners, check that your business income reaches the minimum amount specified in the policy. Look at how long you have to be unable to work before you can make a claim. Also understand what conditions will qualify you for payment. The potential compensation is that if you are unable to work for the rest of your life due to a condition that meets the criteria, you can have a monthly income until a set age. I also think that you don’t have to continue making the premium payments once that happens.
Income protection has so many variables – you really need to trust your advisor. This type of insurance is key to review at least once a year to make sure it is in line with your current situation. If you are winding your business down, check it meets the minimum income. Review if your life situation changes – maybe you aren’t the primary earner anymore, have a new partner etc. If you find all this overwhelming, maybe find a buddy to share the research with, preferably one that enjoys reading fine print!
Business insurance provides lots of opportunity for decision making and reading fine print. Professional indemnity is often stipulated as a requirement for some contracts, so you have no choice if you want to do their work. Then there is Public Liability – what happens if someone injures themselves? Again, this can be stipulated for some contracts/lease agreements. Then there is the human insurance that applies to businesses like Key Man insurance (don’t worry, women can get it too, despite its name). What happens if a key role in the business is unable to continue? Key Man provides compensation to reduce the impact of them no longer being there, and covers the cost of finding a new team member.
So many options. I have a great deal of respect for those that work in the insurance industry, as not only do they read the fine print, but they also have to deal with people like me that find insurance tedious and frustrating.
I recently reviewed all my insurance policies, removed a few listed items, added some new ones (I do it within 24 hours of purchasing something valuable) and cancelled one policy. I am also about to move some of my policies away from a particular company because they only get in touch a week before my policies renew and their customer service is terrible. They get an easy 10% income from my premiums for doing nothing – not anymore!
Take an interest, find a good broker and review at least once a year. Let us know how you did.