This is particularly important for partnerships where responsible for costs may be shared equally and the disability of one partner would then increase the cost responsibilities to the remaining partners, at a time when cashflow would already be under stress.
The general idea about fixed expenses insurance is it's designed to reimburse the business for the fixed expenses that would continue to accrue, if the business principal was unable to work because of a sickness or injury.
In practical terms, it's designed to support for short periods of disability (usually to a maximum of 12 – 24 months) so there is still a business for the business owner to go back to.
What happens if the owners is disabled and unable to work for longer than 12 months?
Our experience has been that if a business owner suffers a disability that makes them unable to work for an extended period of time, having the recurring fixed costs of the business taken care of, allows the owner to concentrate on recovery.
In the worst case scenario, it provides breathing space to make arrangements to exit the business without the need to be forced into a fire sale positon.
How does this work for a partnership or where there are two or more owners/directors?
- In the case of a 50-50 partnership where the fixed costs are apportioned equally between the two partners, each partner can insure 100% of their portion of those costs.
- If a business owner has prepaid eligible fixed costs before being sick or injured and unable to work, a pro rata reimbursement for those amounts is usually available.
How long with the benefit payment be made?
Business fixed cost cover is usually capped at 12 to 24 months.
What happens if I work from home and share personal business expenses?
Many people in a self-employed situation structure their tax position in a way where they might claim some expenses under their business structure for which they also may receive some degree of personal use
Even though these expenses appear in the accounts of the business, they may be enhancing the lifestyle of the business owner to a percentage and as such the calculations can be adjusted accordingly. For example; A vehicle may be used 90% for business purposes and 10% for family use etc. Your accountant can usually provide a breakdown of the eligible fixed cover costs for a business.
|How would you pay these business expenses if you couldn’t work?|
|Fixed business expense||Covered under business interruption insurance?||Covered through personal income protection?||Covered through business expenses cover?|
|Rent, rates, taxes and insurance on your premises||✗||✗||✓|
|Utilities (power, internet, landline, mobile)||✗||✗||✓|
|Vehicle leasing, registration, insurance||✗||✗||✓|
|Leasing – equipment, tools, loan repayments||✗||✗||✓|
|Salaries of non income generating employees, including Super Guarantee and payroll tax||✗||✗||✓|
|Other costs eg. bank fees, interest on loans, business insurances||✗||✗||✓|
|Subscriptions, memberships, Accountancy & Advice fees||✗||✗||✓|