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Note: We do not offer business expense insurance. This is an old article from 2012.

Trade Insurance

If you were unable to work for a period of time, how would you cover your business expenses?

Even for a sole trader there are still numerous expenses to be met each month regardless of whether or not you are actually working. These costs can include vehicle lease or loan repayments, equipment finance, insurance premiums and advertising such as the Yellow Pages.

If you were unable to work due to illness or injury and could not run your business for a few months, the last thing you would want is to have your business ruined financially by the time you could get back to running it.

Business expense insurance is similar to income protection in many ways, but instead of covering your personal expenses it is designed to cover your business expenses.

As a self-employed tradesman you probably have a good accountant who is great at getting you plenty of deductions. The only drawback with reducing your personal taxable income is that your income protection claim may be reduced accordingly. This is where business expense insurance can step in.

Business expense insurance in practice

Say your total business income is $9,000 per month. $3,000 goes towards fixed business expenses and the remaining $6,000 is profit. The amount you need to survive on is $4,500 and the remaining $1,500 goes towards savings.

Your accountant will work hard to get all of the deductions you are entitled to, and may be able to get your personal income down from $6,000 to $5,500.

Income protection will pay up to 75% of your personal income, and in the event of claim you will have to provide evidence of this income in the form of tax returns. Based on the $5,500 monthly figure on your tax return, the maximum amount they will pay for your claim is $4,125.

$4,125 per month won’t cover your usual personal expenses of $4,500, however the monthly shortfall is only $375 and you can make adjustments over the months whilst you’re away from work to ensure that you can get by.

That’s all good and well, but you still have another $3,000 in fixed monthly business expenses to meet, and this money needs to come from somewhere.

Without these funds you cannot keep up the repayments on your ute, which will eventually be repossessed. You also cannot keep up the repayments on an equipment loan you took out, which will potentially lead to repossession and a poor credit history.

You cannot keep up the monthly premiums on your public liability and tool insurance, which will eventually be cancelled, leaving you exposed to various financial risks. And you cannot maintain the monthly payment for your Yellow Pages ad, which will eventually lead to a black mark on your credit rating.

As you can see, without business expense insurance your business could be completely run into the ground by the time you are well enough to return to the business.

One of the motivating factors which can help you through a major illness or injury is the determination to return to a normal life, which includes returning to work and earning a living for your family. If you have no business to return to, part of your motivation is taken away which could then lead to a longer recovery process.

What are fixed business expenses?

Fixed business expenses are those that do not change from month to month. Generally these are expenses that will remain payable regardless of whether or not you are working, on holidays or away due to illness or injury.

Typical fixed business expenses for a tradesman will include:

  • Lease or loan repayments on a ute or truck
  • Equipment finance repayments
  • Business insurance premiums
  • Salary or wages for permanent staff
  • Ongoing advertising costs (eg. Yellow Pages)

Business expenses that would typically not be classed as fixed for a tradesman:

  • Stock and materials
  • Payments to subcontractors

Taking out business expense insurance

The first step for a tradesman taking out this type of insurance is to work out their fixed business expenses and establish how much insurance cover they require.

The next step will be to choose an insurance provider that offers business expense insurance for tradesmen. Most mainstream insurers will offer some level of cover, but different insurers will offer varying levels of cover depending on your trade.

Using an insurance broker who specialises in tradesman insurance is generally the best way to go in ensuring that you are taking out the right insurance to suit your particular trade and your overall needs and objectives.

Here are Tradesman Insurance we have access to a network of insurance brokers and financial advisers who know the trades industry and know how to find the right policy for you. They also have access to all of the best insurance products available in Australia.

For more information on business expense insurance for tradies give us a call or complete our online quote request form.

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