Income covers for self employed in Australia is known as business expenses insurance. This type of cover pays for a variety of fixed business expenses such as but not limited to rent, electricity and non-income producing staff salaries. Income covers for business owners can ensure that proprietors, sole traders or partnerships do not have to worry about their businesses when they are forced to take a few days off from work due to being ill or injured.
Income covers for self employed provides the pre-decide amount or a variable amount to the insured person towards monthly compensation payments when a successful claim is filed. These policies can ensure that businesses do not have to close down, file for bankruptcy or pay for debts out of their own pocket when the policy holder is unable to work for a few weeks, months or years.
Small and medium business owners who are permanent residents of Australia are eligible to get income covers. In addition, the business has to be registered and the policy holder should be able to provide the required documents proving this. Both sole traders and joint partnerships are eligible to purchase income protection plans for business owners.
Claim eligibility criteria incudes, filing the claim in full at the time of applying for compensation, providing all the required documents at the time of filing the claim and disclosing al the required information at the time of filing the claim. The documents you will have to submit at the time of filing the claim will depend mainly on the fact if you have purchased an agreed value or indemnity contract.
Agreed value contracts offer a guaranteed compensation payment to policy holders who earn a varied income every year and proof of income has to be given to the insurer at the time of applying for the contract. Indemnity contracts offer a variable compensation payment to policy holders and this compensation amount can fluctuate depending on the total salary earned by the policy holder at the time of filing a successful claim. For indemnity contracts the proof of income has to be submitted at the time of filing the claim.
Policy holders can expect to receive a large percentage of the business’s fixed costs towards compensation payouts once they file a successful claim. This being said, the insured amount you select will depend on the amount you earn and the policies of the insurer.
For instance, Zurich Financial Services offers a maximum of 100% of the fixed costs of the running of the policy holder’s business if he is disabled, ill or suffers loss of income due to any insured event; while other insurers offer a maximum of 75% of fixed costs when a claim is filed for insured events. As far as possible, buyers are encouraged to opt for the maximum cover since this will ensure that the proprietor, sole trader or partnership doesn’t have to worry about putting the remaining amount from his pocket when he is suffering loss of income.
Benefits of Income Protection
The fixed costs of the business will be paid by the income insurer once a claim is filed and accepted. The actual number of benefits that will be offered to the buyer will depend largely on the premiums of the policy, the type of contract and the terms of the insurer.
For instance if one insurer offers fixed costs compensation for premises, services, equipment, salaries with related costs, fixed contract costs then another insurer may offer the same benefits along with other eligible expenses such as auditing fees, bank fees, bank charges, regular advertising cost, interest on business loans, fees on business loans and membership subscriptions to professional associations.
As a general rule, buyers can expect to get maximum benefits by opting for a premium policy that has flexible terms.
What To Remember
- Before purchasing a business expenses insurance policy, it is important to remember that there are tax implications of purchasing these plans. While some of these tax implications are good and allow the buyer to enjoy tax benefits, not all of these implications are favourable and there can be some surprises for buyers. For instance the Income Tax Assessment Act 1997 contains a provision that prohibits the offset of business related losses against other categories of assessable income. Hence, before purchasing a policy to protect your business, consult with an insurance advisor or financial advisor to get a good estimate of the tax implications of your selected plan.
- The claim for compensation can only be filed by the policy holder once the waiting period of the policy is over. This waiting period begins when the application for the policy is accepted and can last for 30 – 120 days. The terms of the waiting period will be mentioned on the website of the insurer and will also be mentioned in the legal document the policy holder will get once he agrees to purchase a contract from a selected insurer. A day one claim benefit can make sure that the policy holder is eligible to file a claim even when the waiting period is active. This paid benefit can be purchased from selected income insurers in Australia.
- The benefit period indicates the number of years the policy holder can file a claim for. This means that once a claim is filed and accepted, the policy holder can enjoy the benefits offered while the benefit period is active such as 2 years – 5 years. The benefits of the plan will cease once the benefit period is over or when the policy holder reaches a certain age such as 60 years.
- Business expenses plans that are often known as income protection for business owners can be purchased through a variety of methods such as via the phone, in person at the insurer’s office or through the internet. Before purchasing a plan, ensure that you have spoken to a financial advisor who can explain the selected policy to you in detail. You should also remember to compare plans since this can help you get better benefits while saving money on insurance.