During the two-day event, Mr Stephen Chew spoke about why it is absolutely vital for business owners to plan for and invest in business insurance.
It was an enriching and enlightening two days of knowledge sharing and gaining invaluable insights at “Moving On”, the annual AFA event for financial advisers that was held from 14 to 15 July 2016 at Grand Copthorne Waterfront Hotel. Our Principal Consultant Mr Stephen Chew was cordially invited to speak on both days, sharing his views on two hot topics that had everyone in attendance all ears.
One of the topics he launched into was “Business Insurance Planning for Business Owners”, especially relevant in Singapore’s context where almost 70% of the labour workforce is found in small and medium enterprises. Many business owners tend to overlook the importance of having business insurance – they often find it too complicated, or feel that things will fall into place and “take care of themselves.”
With this mentality, businesses are setting themselves up for a hard fall when/if anything untoward happens. In reality, there are many unforeseen situations that can threaten and endanger SMEs. In Stephen’s words “business insurance is a MUST for any business!” He went on to illuminate his point with real life case studies and newspaper reports, such as the notable Swatow Restaurant example where the untimely demise of its owner resulted in the closure of all 18 restaurants.
First of all, it is important to understand your business profile and to take a good look at your company’s financial statements. Factors and details such as registration number, registered activities, date of last annual returns, issued and paid up capital, ownership and charge are vital in considering what type of coverage and protection you should get. Oftentimes, the life savings of the small business owner are tied up in the company, so the business owner should take steps to protect his/her family from the financial consequences of events that could disrupt operations and reduce profits. Insurance can aid in the success of a small business by reducing the uncertainties.
The four types of insurance available to SME Business Owners:
Keyman Insurance
- Identify the Keyman in the company
- Describe how the Keyman contributes to your company
- How will the company be affected upon the demise of the Keyman
- Estimate the loss of profit arising from the demise of the Keyman
Credit Protection
- Identify the Guarantor
- Describe the effect of the Guarantor’s death to the company and family
- What is the cash flow that needs to be generated
- Determine the sum assured required to protect the Guarantor
Deferred Compensation (for Key Employee)
- Identify the Key Employee
- Describe how the Key Employee contributes to the profitability of the company
- What are the benefits of retaining the Key Employee
- Determine the deferred compensation required to retain the Key Employee
Deferred Compensation (for Owner)
- Identify the Owner
- Describe the duties and income of the Owner
- What are the income loss borne by the Owner or the replacement of Retained Profit
- Determine the deferred compensation required to compensate the Owner
Business Succession
- Identify the Owner(s)
- Describe the effect of the Owner(s) death on the continuation of the company
- Assess the value of the company
- Determine the sum assured required to provide fair value to the estate
Conclusion:
The benefits of business insurance are many; including continued operation and repayment of loans. It will also help to reduce turnover of key employees and allow for smooth transfer of shares. Business insurance safeguards the interests of a small/medium business owner and ensures the continued operation of the business in the event of unexpected circumstances. It can provide security for creditors and is also instrumental in attracting and retaining excellent employees. Quite simply put, the conclusion is that business insurance is a MUST for every business, whether big or small.
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