If you’re like most small business owners, your personal life and business life are practically inseparable. That’s why it’s important for your personal insurance planning to take into account the unique consideration of owning and operating a small business.
Unfortunately, insurance for small business owners often neglected by most advisers, for simple reasons:
- Majority of insurance products are designed for working professionals who are employees as this has the widest market.
- Majority of insurance advisers are not trained to plan insurance for small business owners and thus lack of necessary knowledge and experience.
- Business owners are generally perceived as “high net worth individuals”. Insurance advisers tend to focus on “big premium” products and overlooked the fundamental needs of the clients.
As a result, you might be paying huge insurance premiums every month, but still missing these three types of insurance in your insurance portfolio:
- Disability income insurance
- Directors and officers’ liability insurance
- Appropriate health insurance
Disability Income Insurance
What would happen to your business if you were paralyzed for one year? How about sustaining an eye injury for 6 months? Do you know how expensive long term care can cost?
What could be more horrifying if you call up your insurance agent and you realize you cannot claim a single cent because your insurance policies will only pay out in the event of death, total & permanent disability, or critical illness.
A typical disability income insurance pays a fixed amount each month to replace the income you would lose if you are unable to work as a result of an accident or illness. I seldom see such a policy when doing the insurance review for my clients.
An illness or accident resulting in disability will not only be devastating to your life, but also your business. Many small business owners are totally unprepared for such scenarios simply because nobody has told them about it.
Directors and Officers’ Insurance (D&O)
If you are a small business owner, you are likely to be the director running the company too. Most people think they are shielded by a “private limited” company, but the reality is, in today’s business environment, your personal wealth and reputation are completed exposed.
Not long ago, a dental nurse sued a director of Pacific Healthcare Holdings, Mr Benny Kwan, for alleged sexual harassment, claiming he had repeatedly bugged her for dates. Regardless of whether you are right or wrong. When you wear a director’s hat, you are personally liable for this type of allegation. It means you have to pay the defence cost out of your own pocket.
In 2010, a shipyard was charged in court with breaching the Workplace Safety and Health Act which resulted in the deaths of three foreign workers and injury to four others in separate incidents.
What is worth noting is that the project manager and ship repair manager are also charged personally.
In fact, there are many other incidents that the directors are personally charged too. You may say never mind, the company will hire the lawyer for me. If you think so, you are deadly wrong.
Many directors or managers are not aware that under Section 172(1) of the Company Act, the company is NOT allowed to exempt or indemnify its directors or officers against any liability arising from any negligence, default, breach of duty or breach of trust.
However, that does not mean that there is nothing you can do. A typical Directors and Officers’ insurance can help defend your reputation.
It is a liability insurance which pays the directors and officers as indemnification (reimbursement) for losses or advancement of defence costs in the event an insured suffers such a loss as a result of a legal action brought for alleged wrongful acts in their capacity as directors and officers.
So if you do not have D&O insurance, you will be risking your own reputation and wealth. You are on your own.
Appropriate Health Insurance
This is ironic because health insurance is often the cheapest insurance to buy. Even with new Medishield Life reform, a lot of Singaporeans are still severely underinsured in this aspect.
If you are a small business owner, you are often too occupied with your own business and rely on insurance advisers to manage your insurance portfolio. As I said earlier, because of the perceived or real financial status of business owners, you attract bankers or advisers who are aiming for “big fish”.
Think about it, most bankers are not interested nor have the license to sell health insurance. Most of the time, they just want to push investment products or loans.
An insurance agent also has little incentive to help because it earns too little commission. Isn’t A whole life proposal sounds more promising?
I always find the shortage of health insurance is prevailing among my business owners clients when I first met them.
Sometimes business owners do have health insurance. But because of their financial capability, some are lured to buy overpriced health insurance, which offers redundant or unnecessary coverage.
Are you a small business owner, do you have these three types of insurance? Maybe it is time to take five minutes to take a look at the policies you have.
As a licensed independent financial adviser, I helped many small business owners reviewed and re-organized their insurance portfolios. If you want to seek for professional advice, contact me using the form below for a non-obligatory discovery meeting.