Not having adequate life cover when self-employed can result in your family being left with a pile of debt in the unfortunate event that you pass away. Don’t overlook the benefits of life cover for those you love…
Lee Bromfield, CEO of FNB Life says: “Even if you had life cover in your personal capacity before starting out, it may still not be enough to cover both the financial needs of your family and business-related expenses, regardless of how small your operation may be.”
For instance, should you pass away a sole trader who is married in community of property, your spouse will be left to deal with estate administration costs, debt obligations, legal fees and cash flow issues while deciding the fate of the business, amongst other expenses.
Bromfield shares some of the key reasons why self-employed individuals should consider taking out life cover as a risk mitigation strategy.
- Loss of income or profits – Should your family decide to keep the business going, there may be financial expenses incurred while looking for a suitable successor.
- Business expenses – Life cover can help your family take care of business expenses such as rent, consultants, contractors, suppliers, taxes and broader operating expenses.
- Business loan – In the event that you had to raise capital to start the business or acquire operating assets, the estate may be held liable.
- Forced liquidation – Should your family be forced to sell the business and its assets to cover its debt, any outstanding amount can be covered through life insurance.
- Recovering debts – If there was a company or person that owed your business money, it may prove challenging to recover some of the funds without having the financial means to seek legal
Consult your bank or financial advisers to determine the best cover amount, as this may vary depending on the nature of their businesses and personal financial commitments. In conclusion, Bromfield says, “Do not let a good intention to be financially independent end up being a huge debt burden on your loved ones, by not having adequate life insurance cover.”
Source: FNB. Image: Investopedia.