Loss of Revenue due to illness or injury, are you prepared?

Loss of Revenue: three words that strike fear into the hearts of business owners across New Zealand. There are risks in running a business and owners face an array of challenges that can impact the bottom line. The entrepreneurs of New Zealand are not ignorant of these risks and many mitigate with insurance for their buildings, plant, tools and machines but did you know you can insure against loss of the "rainmakers" that bring in the revenue?

Understanding Loss of Revenue Insurance

Loss of Revenue insurance, serves to protect the business if the staff that bring in the money were unable to work. This might be the business owner, it might be the top sales person, or it could be the person on the tools. The Loss of Revenue protection will insure the business continues to earn if this person can no longer work through illness or injury.

Small and medium sized businesses in particular can rely heavily on a small number of key staff that bring in the money. These staff may not be readily or affordably replaced, it could take several months of interviews and training to fill the role. Replacement itself is an expensive process and all while the revenue is falling. This is where loss of revenue insurance can be a life saver, making sure that the money those key staff bring in keeps flowing when they are not able to work.

What does Loss of Revenue Insurance Cover?

Loss of revenue insurance pays a monthly amount to your business when the rainmaker is too incapacitated to work. This can mean up to 80% of the revenue they bring to the business. Other policies will cover the cost of doing business, rent, utilities, hire-age, etc. allowing you to keep the lights on. It is also possible to get a policy to pay for locum cover so there are funds for a short term contractor.

There are some things to consider when buying a policy for your business. A "wait period" will be added to the policy. This is the time the staff member has to be disabled before the claim will begin to pay. This can be as little as 4 weeks. Only you as the business owner can decide how long cash reserves will last.

As the policy owner you will also have to chose the length of time a policy will pay a claim. Depending on company this can range from 6 months to 3 years. Of course your needs will be dependent on your business structure.

How Does This Insurance Work In Practice?

As always I like to show you how these covers work with the help of an example.

Example 1:

Jack runs a successful building business. He has a small team but he's the one that gets the business, organises quotes, manages jobs as well as spending time on the tools. If he became disabled Jack knows the contracts would dry up, the team would be leaderless and the business would collapse. This is why he took out Loss of Revenue cover.

Unfortunately Jack is diagnosed with cancer and the chemotherapy is stopping him from working as he would like to. His Loss of Revenue policy kicks in and pays a monthly amount into the business. Jack is able to promote someone to a managers role and hire a replacement. He can then focus on recovery, knowing that there will be a business to return full time to.

Example 2:

Jill owns coaching business, she works primarily online but also rents a room a few days a week. The business is successful but she knows the business is her and she is her business. No-one else can do her job. She uses online resources and virtual assistants on long-term subscriptions to reduce outgoings. Jill knows that if anything happens to her she won't be able to earn. To cover this contingency she takes out a Loss of Revenue policy.

Jill has a car accident that results in a head injury, which prevents her from working. She knows it will be a long recovery and she won't be earning during this time. Unfortunately the rents and subscriptions still need to be paid. Even though it was an accident ACC won't cover her business expenses. Fortunately Jill can rely on the Loss of Revenue policy to cover those costs so she can work on her recovery.

Is This for Me and How do I get it?

If you own a small to medium business and rely on one or two key members of staff then Loss of Revenue insurance is for you. If your business has monthly outgoings that need to get paid earning or not, then Loss of Revenue insurance is for you.

Some of you reading this might be unsure if your company needs this and if that is the case then give us a call and we'll be able to guide you. Perhaps you have already decided that you and your business need Loss of Revenue insurance. If so then give us a call and we can take you through this. We understand how complex this can be and will make it as simple as possible for you.

You are the expert in your business and we are the experts in insurance. We are happy to guide you through the quote and application process. More importantly we will be in your corner when you need to make a claim.

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Cover Yours Limited (FSP769531) is a registered Financial Advice Provider and Marc Hamilton (FSP306046) is a Registered Financial Adviser and you can search the register here. Marc Hamilton is a member of the FSCL Disputes Resolution Service. Cover Yours Ltd and Marc Hamilton's Disclosure documents can be found here or you can email marc@coveryours.co.nz.

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