Owners Income Protection
How might the incapacitation of a business owner or key person affect the business’s ability to remunerate its shareholders?Want to know more? Let’s chat >
1. What is Income Protection?
Income protection provides you with ongoing personal income should you become incapacitated and as a result, be unable to draw income from the business.
Personally owned Income Protection policies ensure your family’s income needs are met beyond your ownership in the business and are an important component in prudent business and personal protection.
2. I own the business, why do I need income protection?
When a business owner is unable to actively contribute to the business it can have detrimental effects to the financial performance of the company.
The actions a business may need to take to minimise or mitigate the loss of a key business owner may also impact the business’s ability to continue to pay shareholder salaries.
A personal income protection policy can ensure the business owner can continue to meet his personal financial obligations regardless of the financial performance of the business. In a multi-shareholder business this can also protect against potential conflict with other shareholders.
3. Is Key Person cover the same thing?
Key Person cover usually addresses the immediate 1-2 years following the loss of the key person. Should a shareholder be incapacitated for longer than that, there may be pressure for that shareholder to sell their shares or put the entire business on the market. In this situation, the business owner may still require an ongoing income. Personal Income Protection can meet this need.
When correctly structuring Key Person cover and Owners Income Protection it is important to ensure these benefits do not overlap each other.
Advice Plus will assist in the correct structuring of these solutions to ensure you are not overpaying for your insurance.
4. What if my business makes enough money to keep paying me when I can’t work?
If this is the case, then you truly have a good business.
However, in the event of a long-term or permanent disability the financial performance of the business may not be as certain.
Should a long-term or permanent disability occur, it may be in your best interest to sell the business so as to maximise value to your estate.
In this event, you may still have ongoing income needs beyond your ownership in the business.
Advice Plus will walk you through a detailed analysis to determine your income requirements should this type of event occur.