Business Expense Insurance is an underutilised form of insurance that covers the ongoing fixed costs of a business due to the disablement of an owner.
More important for smaller businesses, Business Expense Insurance ensures that if a business owner is unable to work due to illness or injury in the short term (normally up to 2 years) that ongoing fixed expenses of the business are covered and the business can continue to meet its obligations when turnover/income is reduced. The full amount of fixed business expenses can be insured.
Business Expenses Insurance works in a similar manner to Income Protection with waiting periods and benefit periods being able to be tailored to the needs of the person and business. Business Expenses Insurance can be taken in combination with Income Protection or on its own.
A major difference between Business Expense Insurance and other Keyman Insurance policies is that it is an ongoing monthly payment paid on short term or partial disablement (as opposed to a lump sum payment for total and permanent disablement). It can be particularly useful for smaller business with high fixed costs or ongoing business commitments that are dependent on the income generated by a single or small number of operators.
Business Expenses insurance designed to cover the costs and protect the profitability of the business is generally tax deductible and proceeds are assessable.
What is a fixed Business Expense?
Policies vary slightly in their definitions of a ‘fixed business expense.’ Typically expenses that are regular and would continue regularly and to a similar value if the business owner was disabled are insurable. Some typical business expenses that are covered include;
- Utilities – Gas, Electricity, Heating, Phone, Internet etc.
- Rent, Property Rates and related taxes
- Ongoing Professional Membership Fees
- Accounting and Audit Fees
- Business Leases
- Banking Costs (Charges, Interest Costs)
- Business Insurance Premiums
- Regular Advertising Costs, Printing and Stationary
- Salaries for non-income producing employees and Net Locum Costs
The costs are reimbursed monthly and the amount that is paid cannot exceed the amount insured under the policy.
What Business Expenses cannot be insured?
There are some costs in the business that cannot be insured and typically these costs are irregular, would cease if the business owner were incapacitated, or capital in nature. Business Expenses cannot be insured;
- Loan Principal Repayments
- Other Capital Costs
- Depreciation Costs
- Remuneration Costs for the person insured under the Business Expenses Policy and other income producing employees.
- Investment Losses
These costs are also typically non-deductible for the business and may be insurable under the business owner’s income protection policy.
Have questions or comments about Business Expenses Insurance? Start a discussion below!
Looking to compare Business Expenses Insurance?
MoneyGeek wants to make sure our readers get easy to understand information to assist make the right financial decisions. Choosing the right business expenses insurance policy is a complex decision that can cost or save thousands over the long term. MoneyGeek has teamed up with Keyperson Insurance to provide free insurance comparisons and advice to assist you set your life insurance up to protect your business and your pocket!.
About the Author – Benjamin Irons
Benjamin has been involved in the financial services industry since 2004. Benjamin has a Bachelor in Business, Diploma of Financial Services (Financial Planning). Previously a Financial Adviser and a business owner, Benjamin has worked with hundreds of individuals and businesses to implement simple strategies to improve wealth. Benjamin writes for a number of websites to assist people take control of their finances and find their financial freedom!