New to Business versus Business Overheads Cover

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Russell Hutchinson looks at the question whether to take New to Business Cover as an alternative to Business Overheads cover.

Saturday, May 18th 2013, 3:26PM 1 Comment

by Russell Hutchinson

Which would you rather have?

The certainty of $2,000 a month or the chance of $4,000 a month?

I have to admit I hadn’t thought about New to Business Cover as an alternative to Business Overheads – I had the markets segmented neatly: If you are New to Business you buy that one, if you aren’t you would naturally buy either Business Overheads Cover, or Locum Cover, or even Business Continuity Insurance which is a kind of Key Person Disability payment, depending on your situation.

But some advisers, I spoke with one the morning I wrote this, see New to Business Cover with no offsets as a great alternative to Business Overheads – not, of course, with older businesses, but the overwhelming majority of small businesses are less than three years old.

They like the fixed sum insured “It’s kind of Agreed Value Business Overheads cover.” Maybe that’s where the marketing of this product has effectively taken the insurance cover. If buying insurance is about securing a certain financial outcome in the event of a disablement then you can see how this solution benefits the client.

On the other hand, they have to be pretty good at getting their benefit level right. With Business Overheads, or Locum Cover, you could aim for a roomy sum insured and collect all your expenses up to that level. If you claimed less, yes, you could say that some of the sum insured was ‘wasted’ but you also suffered less loss.

On the other hand, if you have the New to Business cover you can be certain of collecting the sum insured, but the chances are you will have chosen less – because provided your business is growing your sum insured will have been set at an earlier point, then the business grows. So unless you are careful about keeping it up to date – and most people aren’t – your sum could well be less than you need. That situation points to another dimension – the kind of adviser you are.

If you are the kind of adviser that is great at doing annual reviews then you may well prefer the fixed sum approach.

It means you have another good reason to review your client’s business: you want to review the sum insured. It gives you another trigger question “have your business expenses risen in the last year?”

Provided you can survive the smart ones saying “what…other than my rising insurance premium?” you have a good basis for reviewing cover.

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