A quick guide to income protection insurance for business owners

A quick guide to income protection insurance for business owners

As an entrepreneur, you hold all the benefits, risks, and responsibilities that come with owning a business. Therefore, you must manage them well to turn your investment into a success. Luckily, an insurance firm can help you with that if you buy a policy with the right cover.

The right insurance plan offers financial security to the owner and the business in times of difficulty. For example, when a business is a policyholder, it can step in to cover insured liabilities and, therefore, minimise losses.

To learn more, here’s a quick guide to income protection insurance for business owners.

What is Income Protection Insurance?

Income protection insurance is a type of cover that provides financial help to business employees unable to work. These incapacitations can arise from sudden illnesses, injuries, and other misfortunes that cause you or your employees to stay off work for a long period of time. Buying its insurance policies assures you that you will receive a percentage of your regular income during your recovery.

How Does Income Protection Insurance Work?

An income protection insurance policy works when you take it out for a specified risk. The risk here is the misfortune that may prevent you from working for your business. In your application of the policy, you choose the kind of risk that you want to cover. Then, the insurance provider calculates the cost of covering your risk and the amount to pay as premiums.

Most insurance firms offer the benefits of income protection as a partial replacement of your salary. In other words, the sum assured is a percentage of your income, and ranges between 50 to 70% of your monthly salary from the business.

What Does the Policy Cover?

A policy under income protection insurance covers risks that stop employees and business owners from working. Such risks are mostly health-related problems, usually illnesses and injuries. This explains why income protection insurance is sometimes also known as ‘permanent health insurance’.

It’s worth noting that income protection insurance does not cover policyholders with pre-existing or undeclared medical conditions. Therefore, try to find out your family medical history of illnesses before buying a policy. Furthermore, consult a specialist before assessing your medical condition, to then apply for the right cover.

Who Needs This Cover?

Anyone can apply for income protection insurance cover. However, it may best suit you for a number of reasons.

Firstly, it may suit you if you have no savings to cater for mishaps that prevent you from working. The insurance cover acts as a backup income stream, allowing you to focus on your recovery only without the stress of working and lack of income.

Secondly, you may have a family that solely depends on your business income. A suitable policy supports your family when you are unable to provide.

Thirdly, this insurance suits you if you are the only owner of a business that you depend on for income. An incapacitating illness or injury often forces the closure of your workplace and cuts off your wages. The income protection insurance, just like your salary, will take care of your treatment bills and other financial burdens.

Benefits of Taking Out Income Protection Policy

  • A short-term income protection policy is easy to renew, giving you more flexibility over insurance budgets. This way, you save more by avoiding irrelevant purchases.
  • You get help with bills or expenses covered by your insurance policy. It provides relief from risks that are insurable and short-lasting.
  • If the effects of the risk(s) are long-term, income protection insurance protects you until you retire from business. It offers wages after the risk occurs and when you lose your main income stream.
  • You can claim several assured benefits. Long-term policies protect you from recurring risks.
  • It increases your sick leave salary, if any, thus improving or maintaining your financial position. This saves you from bankruptcy.
  • It offers tax-free payments.  

How To Claim It

Claiming the benefits of the income protection insurance cover is procedural. Therefore, when the risk covered against occurs, it can take a while for the insurance provider to process and disburse the payout.

You can make the insurer’s work easier by contacting an agent as soon as risk occurs and also by providing correct details of the policyholder, such as their policy number, name, reason for claiming, etc.

Often, the beneficiary has to attach a medical report in case of an illness or injury. Proof of income loss is a must to validate the claim. 

Kate Dyson

Kate is the Founder of The Motherload, the 'owner' of one husband, two daughters, two cats and one rabbit. She loves wine, loathes exercise and fervently believes in the power of women supporting women. Find me on instagram: @themotherloadhq

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