As trade business owners or sole traders, life insurance plays a crucial role in protecting your family’s and employees' finances in case of an unexpected event. Organising coverage for yourself and your employees not only supports their families in times of crisis but also protects your business from potential liabilities.
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As a trade business owner, life insurance is essential because it ensures your family, and the families of your employees, would be protected from financial hardship if the worst should occur. It means that costs, such as childcare, medical bills, funeral costs, debts, mortgage payments, and children's education can be temporarily covered by the death or disability benefit from your insurance policy.
As a responsible business owner, providing a life insurance policy for your employees that covers a year's salary means you're fulfilling your moral and legal requirements.
Whether or not you're on the tools yourself, all business owners need life insurance. However, as a trade business owner, you face higher physical risks compared with many other industries. Trades like plumbing, electrical, roofing, and construction involve unique hazards, such as increased physical danger, the use of heavy machinery, and the financial impact of seasonal work. Each of these factors needs to be carefully considered when selecting the right life insurance policy for your trade business.
A whole life insurance policy ensures that your family will receive a payout, no matter when the time of death or injury takes place. It provides lifelong coverage as long as premiums are paid and will accumulate a cash value over time. A permanent policy can become a valuable asset for business owners as you may be able to borrow against the policy for business needs, such as funding, managing unexpected expenses, or dealing with cash flow shortages. It can also serve as an emergency fund in case of an unexpected slow period.
Benefits:
Term life insurance is typically set up to provide coverage for a fixed period (typically 10-30 years) and pays a death benefit if the policyholder dies within that time frame. It's ideal for business owners who want financial security for their businesses and families without high premiums, allowing them to allocate more resources toward other business assets such as expansion, equipment, or payroll.
Benefits:
Typically, an employer will sponsor a policy to provide cover to all their employees. Not only is this a great way. to improve employee morale and help them feel more secure, it can also lead to increased loyalty and job satisfaction. Coverage usually lasts for as long as the individual is employed with the company. Once their employment ends, the policy either ends or, in some cases, allows for the employee to covert it into an individual policy.
A key person insurance policy provides coverage for the business in case a key individual passes away. This could include The business owner or founder who is deeply involved in daily operations, especially if they’ve built strong client relationships or possess specialised industry knowledge. Similarly, losing a key tradesperson with unique expertise, such as a master plumber or electrician, may lead to a breakdown in business and be difficult to replace. Whether it's a sales manager, project manager, or co-owner, the death of these individuals can result in lost revenue, uncompleted projects, and financial strain on the business, which is where key person insurance provides crucial support.
Benefits:
This agreement stipulates what will happen to an owner's share of the business if they pass away, retire, or become incapacitated.
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A family income benefit rider is an add-on to a life insurance policy that provides a steady income stream to the policyholder’s family in the event of their death. Instead of receiving a lump sum payout, the family gets regular payments (usually monthly) for a predetermined period, such as 10, 20, or 30 years.
Benefits:
Additional features (riders) can be added to a life insurance policy, providing financial benefits if the policyholder becomes critically ill or disabled. A trade business owner can use the payout to maintain the business’s day-to-day operations while they recover. This might include paying for temporary workers, covering operational costs, or even repaying business loans. If the business owner cannot return to work, these riders provide funds to assist in transitioning the business to a new owner, selling it, or closing it without financial strain.
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As a business owner, it's important to set aside enough insurance to protect your family and business. Insurance premiums can be high, but your coverage should ideally be 5-10 times your annual income to cover living costs and debts. Be sure to include business expenses, like loans or hiring costs, when calculating the right coverage.
The DIME formula helps you estimate how much life insurance coverage you need:
Once you’ve added these together, subtract any existing assets (such as savings or investments) to determine the life insurance coverage needed to meet your obligations.
As a trade business owner, you can purchase life insurance directly from an insurer, through a comparison site, or via a broker or financial advisor. It may also come bundled with other services like a business bank account. The key is to ensure your policy is tailored to your business and personal needs, so you only pay for what’s necessary. Many providers also offer flexible options to update your coverage as your business grows, making policy management easier.
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Disclaimer: The information provided in this article is for general informational purposes only and is not intended to be a substitute for professional insurance or legal advice. Tradify recommends consulting with a qualified insurance broker or legal professional to discuss any specific matters related to your business or trade.