Business Bookkeepping & IT Solutions

Protect your small business by protecting yourself

Protecting our assets and our livelihood for a future generation is something all of us working in small business should make a priority. Yet so many of us are so focussed on just making it through the day that we don’t make the time to put necessary things in place such as a three-year small business plan, find back-up staff to ensure we can take regular holidays, a will and Life insurance.

However, having a small business and a financial safety net in place for your family and small business should you unexpectedly fall ill or die is as important as having a targeted social media plan in place for your business. These insider tips will help you know where and when to spend your hard earned cash when it comes to choosing Life insurance.

First, what do you need to be aware of before spending a cent? Some Life insurance agents or advisors can pocket up to a whopping 120 per cent commission or more of your first year premium. So, it’s no wonder a lot of us avoid getting it or put it in the too hard basket. We’ve all heard stories about commission models which serve as an incentive for agents to encourage you to switch from one Life insurance policy to another. Why? It keeps those high commissions rolling in.

The Australian Securities and Investments Commission (ASIC) moved to investigate these behind the scenes deals. ASIC’s review found that in 45 per cent of cases of high upfront Life insurance commissions, the advice given by agents failed to meet the legal standard.

The result of this investigation has prompted ASIC to limit upfront commissions to 60 per cent of the premium in the first year of the policy by 1 July 2018 (with a transition period of two years) and to cap ongoing commissions at 20 per cent of the premium.

These costs can contribute to inflated premiums. Like fast food sellers who encourage you to ‘add fries to that…’ a Life insurance agent is also rewarded if they cross-sell their products. Some companies pay big bickies if a client signs up to a particular policy. This means you may end up spending extra on a policy and unnecessary premiums. So, how do you know if you are dealing with someone you can trust?

There are three questions to ask that will immediately clarify: 1. How are you compensated? 2. Will you itemise the commissions you’re paid on the products you offer me? 3. Do you accept referral fees?

Avoid wasting money on Life insurance that is not underwritten. In simple words, underwriting is the process of risk selection. This means that you get asked a number of health, occupation and lifestyle questions, the result of which may require medical tests and a request of your medical records. This makes sure that your cover is tailored to your needs. While this process can take longer than obtaining cover that is not underwritten, it means you have greater certainty when it comes time to make a claim.

We’ve all seen ads offering instant approval and sign up for new Life insurance policies, but it can be a case of ‘buyer beware’. Some online Life insurance application forms are designed for easy approval because the process sidesteps health and lifestyle questions particular to your circumstances. It’s a quick way to generate new business without having to go through the medical underwriting process. However, you may end up with an unsuitable policy that may not be honoured at claim time.

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