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I know this may sound wacky, but it's a problem that we don't live some part of our small business lives similar to big businesses.

Imagine deciding to adopt a big business-approach to life. If anything, it would be materially rewarding. I'm suggesting that you live your life according to a plan – a life plan and a business plan is not a bad idea. A combination of both could reduce any possible Peter Pan tendencies you might have, and could create room for a mature approach to an important big business issue called 'risk management'.

Ignorance is bliss
Sure, big business can afford risk management, while many of us run away from reality and potential threats by adopting the ostrich-like, head-in-the-sand approach. This is gambling with your life, your loved ones' lives and possibly your business.

What we're doing is hoping we don't become a statistic, but given a whole lot of lives and happiness ride on the bet to ignore reality, it's time to deliver a reality check. When you're in business for yourself you can't afford to take these risks.

The reality check
First up, some people think workers compensation is a back stop – it is, but it's a short-term one and is not guaranteed to be a lifesaver over the long-term. Do yourself a favour and find out how much Workers compensation is right for you. It will be a wake up call. By the way, accidents happen.

Next, think through all of the things that could go wrong and write them down. Crisis situations such as; business building fire, partner dying or becoming permanently bed-ridden; child becoming ill, requiring operations and nursing help – the list goes on.

The truth of the matter
I know as a small business owner that we have limited resources, but it shouldn't stop you facing the truth, and not all protection is expensive. For example, smoke detectors aren't expensive and changing batteries once a year is neither excessively time-consuming nor expensive. And you have legal obligations here too.

Business owners will be staggered how cheap business interruption insurance is and they will be really staggered if their business burns down!

For the term of your natural life
Personally, term insurance is a smart starting point. This insurance provides an agreed benefit, which is the sum insured on death or the existence of a terminal illness for the life insured.

Premiums – what you pay – can increase with age, or be level locking in a sum insured and a premium for a set period.
The sum can be indexed for inflation and there usually are exclusions (such as suicide) within 13 months of taking out a policy.

The extras
Optional add ons can be total and permanent disability (TPD) benefit, which pays out if the person insured is disabled permanently. You can also consider insuring for a trauma benefit. The policy will list events such as cancer, heart attack, etc.

With all insurance you should read the fine print so you understand what coverage you have but it's important and so it only makes sense that you're aware of all the important issues.

Here's an example
If you had term insurance for $500,000 and further $200,000 TPD cover, any payment for TPD would reduce the money paid at death to $300,000.

For those fearing being kicked out of term insurance as you get older, you can pay for guaranteed insurability and you can also pay for a premium freeze to hold premiums constant.

The complete range
Business loans can be insured and partners can use insurance to sort out the problems when one dies or is permanently injured. And key person insurance in a business is critical when one person's health determines the longevity of the business.

Read the policy
With all policies, look closely at the exclusions and other details. For example, some TPD policies might pay out if the insured can't work at what he is trained specifically to do. However, if his training means he can do other work there might not be a payout!

The origins of trauma insurance
Interestingly, you can thank South African heart surgeon Marius Barnard – yes, brother of Christian – for trauma insurance. As his patients did not die, insurance did not cover them and they encountered financial difficulties while convalescing. He pointed this out to the insurance community.

Filling the gap
Disability insurance might replace a percentage of an old income but what about the medical and hospital bills? This is where trauma insurance comes in.

This sort of insurance should be looked at by people with many responsibilities; key people working under stressful conditions and older people getting into riskier health territory.

Another policy worth thinking about is an income replacement policy to keep income up if circumstances stop you from working.

Do the leg work
Do your own homework or go to a trustworthy adviser or two, or three, to get an objective picture of how risky your life is and what you can do to protect you and your family.

GIO Business Interruption Insurance. It could mean the difference between a pause in your business and an end to it. Click here to find out more.


Published on: Friday, August 28, 2009

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