According to the Global Entrepreneurship Monitor (GEM) 2015 Global Report, 73 per cent of adults in South Africa see entrepreneurship as a good career choice and around 45 per cent of the working- age population believe that they will be able to start a business, but only 9.2 per cent go on to do so.
In the modern world, where people have the option of being employed or to opt for self-employment, each individual in either of these employment categories has unique requirements to address their vastly different insurance needs.
This is according to John Marsden, Executive: Life Advisory at PPS, who states that just as there are contrasts between the desires and goals of individuals who are self-employed and those who are employed, the same goes for their insurance needs.
Below Marsden outlines some of the unique insurance needs between self-employed and employed people;
Unique insurance needs for the self-employed
One key insurance implication for a self-employed professional is that, unlike a corporate employed professional who may belong to a group benefit scheme, they must take sole responsibility for ensuring that their retirement and risk benefits are sufficiently catered for. It is vital to consider a retirement option as well as risk insurance with, inter alia, income protection and life cover as part of their financial plan.
A self-employed individual is responsible for any expenses connected to the business – including their employees’ salaries. If this person falls ill, suffers an injury or becomes disabled, they do not have the luxury of getting paid-for sick leave. Therefore, they need appropriate income protection cover that will pay a sickness benefit to replace their earnings and cover business expenses to keep the business running if they are not able to continue with daily business activities.
Self-employed professionals also have to consider business assurance to ensure proper business succession planning. Buy-and-sell insurance, for example, plays a key role when business owners want to ensure that their business shares are sold to a specific person or group of people at a fair value. To protect the business against the impact of the loss of a person who adds critical value to the business, key person insurance should also be considered.
A self-employed professional should ask their accredited financial adviser the following questions:
- Does my policy cover my full income including actual business expenses?
- How much life cover do I need to provide for my family, debt or other financial planning needs?
- Do I need any business assurance in place (based on agreements / loans / individuals in my business)?
Insurance needs unique to employed people:
Although most professionals who work for a company normally benefit from some sort of company group benefit scheme to cater for their retirement, life and disability or medical risk needs, these benefits are not based on the individual’s personal circumstances. It is therefore important that the employee also considers individual insurance to cover any gaps that might be present in the basic group benefit.
This is especially relevant in terms of the amount of life and disability cover, where it is crucial to understand the amount of cover, the definition of a disability, how comprehensive the cover is and whether it covers their unique lifestyle which might include a hazardous sport. The biggest mistake any consumer can make is to assume that the cover or savings they have in place will be sufficient in an unforeseen event, such as a death, temporary or permanent disability.
It is very important that people understand that the benefits offered by a company are only in place while they are employed at that company, and will therefore stop if they move to another employer or become self-employed. It is critical to have one’s own financial portfolio of cover and savings that are irrespective of company benefits.
As an employed professional some key questions to ask your accredited financial adviser include:
- How much of my total income is taken into consideration when calculating risk and retirement benefits, for example are annual bonuses included?
- Do I need additional cover to supplement my group benefits or should I opt for full cover under an individual policy to address risks not covered by the group benefits? How much of my income is covered under the group benefits and how does the definition of disability under the group benefits work?
- Do I need more life cover than what is offered by the company benefits to ensure my estate and dependents will be properly and effectively looked after?
“Consumers have to bear in mind that each person has individual insurance needs, and therefore employ the services of a certified financial planner in order to ensure that all their risks are covered properly by their insurance portfolio,” concludes Marsden.