Welcome to our latest blog post on cancer-proofing your business.
This series (which I started after being diagnosed with cancer) helps business people endure the effects of a dramatic life event such as injury or serious illness.
Over the course of the series I’ll be talking about how you can set up your business’ and family’s financial affairs to avoid further hardship. Because let’s face it, illnesses such as cancer already create enough stress for everyone involved.
The family business is usually the pivotal point of a business owner’s life with work. The income, financial future and retirement security of both them and their family all depend on the success of the business. So it’s no surprise that the lives of everyone in that family can be affected by how well (or how bad) the business is doing.
Having recently been diagnosed with cancer, the implications of having or not having safeguards in place became a stark wake up call. Fortunately for me I did have the necessary safeguards in place. But it got me thinking about the business owners who don’t, and why so many people fail to take steps to protect such a significant asset and income stream.
The financial issues
A business provides income for paying bills, making loan payments and saving for future retirement. So what happens if that income stops because of ill health—or worse? How will treatments and surgery affect the business’ ability to create income? And how will the medical bills be paid?
Having employees and/or business partners may alleviate these concerns to a degree. But it can be a major problem for sole traders, as they are the linchpin in their business’ ability to generate income. Even larger business need to consider how long they can cover someone’s absence and pay their wages, loans, etc. In my case, I have a great team who could manage the business with limited input from me during my absence. (I’ll talk more about these ‘operational issues’ in an upcoming blog post.)
I also had several other safeguards, namely medical, trauma and income protection insurance.
Three ways I was saved by insurance
The Medical insurance covered the major share of my in-patient medical bills, which seemed to grow exponentially. My three-week stay in hospital with a Golden Staph infection alone came to around $30,000 (100% funded by me medical insurance), so you can imagine what three liver operations (two major, one minor), chemotherapy and radiotherapy would have cost. At this point I must thank my wife for convincing me to keep my medical insurance, even though the kids have all moved out. Thanks to her, the only thing I was stressed about was the number of times they jabbed me with a needle.
Trauma insurance, which is usually paid as a tax-free lump sum payment (at least here in Australia), helps the affected party pay any medical bills not covered by medical insurance, as well as unexpected debts. If the worst came to worst and my income did stop, the last thing I’d want is for my family to be concerned about the house or car being repossessed. It’s exactly the kind of thing this type of policy caters for, and saved me from stressing about meeting debt payments.As you can imagine, the value of this insured amount will vary from person to person. According to Hayden White, the Poole Group’s personal insurance specialist, it should be enough to cover the debts of the both the family and the business during a dramatic event. But don’t buy any more than you need, or you’ll simply be wasting money on excessive premiums.
Income protection insurance
The final insurance policy I claimed on was the Income Protection insurance. After an initial wait period, the insurance company started paying me an income so I wasn’t relying on the business. This type of insurance not only relieves the pressure on businesses paying the wages for those affected and not at work, but also saves their families the stress of meeting their day-to-day living expenses once sick, annual and maybe Long Service Leave from the business have all been used. It’s even more important for sole traders, who are solely responsible for generating their own income. With no-one to keep the business running in their absence, they need to have something in place that will provide an income stream for their families and eliminate any financial stress.(For the record I also have a life insurance policy. But have no intentions of claiming on it any time soon.)
Insurance is an investment, not a cost
I’ll admit that these personal insurance policies may seem expensive. But rather than thinking of insurance as a cost, think of it as an investment—in your future, in your family’s future, and in the future of your business.
There’s no crystal ball we can gaze into, and so all we can do is hope for the best and plan for the worst. And that means making the financial affairs of both your family and your business “cancer proof”.
In our next blog post on cancer-proofing your business I’ll talk about some of the operational issues you’ll need to consider. But if you have any questions in the meantime, don’t hesitate to get in touch.