Protecting the income earning ability of business owners


In the early 2000s I took early retirement from a business in the steel industry. At just 53-years of age my wife Sophie and I realised that we would have to find some way of replacing the lost income, at least until a more realistic retirement age of 65.

After toying with the idea of going back into full time employment I settled for starting my own landscaping and garden-service business. After three or four years of hard work Sophie and I decided to spin off the gardening service and focus on the part of the business we loved – the beginning-to-end design and installation of beautifully landscaped gardens.

We had a couple of teams in the field. I concentrated on the client-facing side of the business and would quote potential clients in-between supervising our various installations while Sophie took care of all of the firms’ administration, bookkeeping and human resources functions.

Things were on the up until a fateful day mid-July when I took a serious fall from a ladder while working on a quote at one of our client’s sites. I severely injured my back and my doctor told me that the best case recovery scenario was three months of bed rest and that there was a real chance that I may be unable to return to the landscaping job for 12 to 18 months.

The first couple of days in hospital were absolute hell. I was consumed by how Sophie would keep the business afloat while I was recovering. Our only solution would be to dip into our retirement savings to make ends meet.

If only I had revisited the comprehensive ‘protection’ plan that my financial adviser had drawn up when we started the business. At the time we deferred the decision due to cash flow challenges in the business.

Small business owners can ‘buy’ income ‘peace of mind’

Jannie Rossouw, Head of Sanlam Business Market, responds:

A key person being unable to work, either temporarily or permanently, places small businesses under serious financial strain. Mervin and Sophie would not have been in this predicament if they had taken out an Income Protector to provide an income in the event Mervin was unable to work.

An Income Protector benefit ensures a steady, tax-free monthly income to meet the insured’s financial obligations in the event he or she becomes temporarily or permanently unable to work (for up to 24 months).

The nature of Mervin’s injury would trigger a temporary Income Protector benefit under the cover of an Overhead Expense Protector which would pay an income to the business which could in turn be used to ensure the business’ continuous operation in his absence.

An Income Protector can be structured to include long term benefits too. An Extended Disability benefit and Total and Permanent Disability Income benefit would prove invaluable if Mervin’s injury turned out to be permanent. The former can be customised to provide monthly income for both pre and post-retirement impairments.

The Total and Permanent Disability Income benefit pays out if Mervin becomes totally and permanently unable to perform his landscaping occupation due to illness or injury. It pays a monthly income until a selected age.

Mervin and Sophie should have discussed the possibility of temporary or permanent disability with a professional financial adviser when they started their business. As explained in the above example the failure to plan for every eventuality can have serious consequences.

M&S's story is the fourth of five business scenarios, brought to you by Sanlam Business Market.

Still to come:

• Savings and Investments: meeting the return and liquidity requirements of business owners

Previous stories:

Business buy-and-sell: What happens when a business partner dies?

Surety cover: Protecting business owners from credit risk

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