Home-based businesses: Don’t overlook insurance

Being home-based is a popular way of operating a business.

A business owner can either start as a sole proprietor or an incorporated company.

Of all the methods, sole proprietorship is the simplest way to start. The business is owned and operated by one individual with no legal distinction between the owner and the business. There are both advantages and disadvantages with this format. Advantages: • A small amount of money is needed to set up a sole proprietorship.

• There is a great amount of flexibility as the owner is the boss of the business.

• The owner is very likely to take a high level of personal interest in the business.

• The owner receives all the profits from the business.

• Sole proprietors can change to an incorporated or limited company at any point down the road. Disadvantages: • Financial institutions are sometimes reluctant to offer loans.

• The owner is responsible for paying all debts.

• If the business fails, creditors may force the sale of the proprietor’s personal property as well as their business property to satisfy the claim.

• If the owner is dies, the continuation or sale of the business is difficult. A new owner may be reluctant to purchase in these circumstances.

To mitigate the disadvantages, insurance should be considered. With insurance in place, your business and personal lives are insured in the event of an unexpected tragedy. Life insurance Life insurance for sole proprietors is designed to protect your business, home and family. It protects at all levels.

If you die unexpectedly, what loans would you like to have paid off so your family does not inherit your debts? Include all significant debts when arranging for life insurance protection.

If you are a breadwinner in the family, do your spouse and children depend on your business income to pay for day to day living expenses?

If so, then add an additional amount of insurance to protect your family. This will replace your income in the event of your untimely death.

For a few dollars a day, you can be insured and your family and business protected.

By bringing all your insurance requirements together, most often it is less expensive than having several different policies. You are the owner of the plan and you choose who to name as your beneficiary. Disability insurance This insurance is designed to replace your income if you cannot work because of a disability such as an accident or extended sickness).

There are several options. Both individual and group plans offer coverage for sole proprietors.

If you have employees or not, there are various plan options that cover you for accident and/or illness.

The ‘waiting period’ is the period of time before receiving income from a plan. This could be the first 30 or 90 days when you are off work because of an illness or accident. At the end of this waiting period, if you are still unable to work, then the insurance pays you a monthly income.

The insurance pays for a specified period of time, according to your plan. Most often, it is two, five or ten years or ‘to age 65’. Critical illness insurance Cancer, heart attack and stroke. These are the three most common illnesses in today’s society. This insurance pays a lump sum of money 30 days after diagnosis of a covered critical illness.

It is common for sole proprietors to have an amount of critical illness insurance that equals one year of income.

If a claim is made, critical illness insurance pays on top of what you receive from your disability insurance plan.

This money can be used for anything you want. Sole proprietors could use this money to pay off loans, hire temporary help, pay for health expenses and help with costs so their spouse can take time off work.

Sole proprietors are their own boss and have flexibility to create very successful businesses. Arrange for insurance plans to protect what you have.

Lisa Jaffary is a life insurance agent and financial advisor with Points West Insurance Services in Kelowna. She is a member of the Advocis, the largest professional association of financial advisors in Canada. Call 250-861-5166 or e-mail lisa@pointswest.ca if you have any questions, or wish her to deal with a particular topic in a column.