Most sensible business owners will have some form of disaster recovery plan in place. In other words, contingency plans to ensure the profits are protected by ensuring the business is up and running as soon as possible, in the event of a major computer systems failure, a fire or flood.

However very few give thought to how they would cover the much larger loss in profits which result from the serious illness of a key person in the business. These  key people are easily identified by the fact that the business owner is nervous about how to deal with their absence for two week holiday.

The key person may even be the business owner themselves as most small businesses are driven forward by their owners.

To give you and idea of the importance of protecting your income if you are unable to work due to illness for a long term, ask your self this simple question.

If I got hit by the proverbial bus and was in hospital for several months and then could not physically do my work for two years what would be the effect on my income and lifestyle?

The question applies if you are a business owner, self employed or even employed. Most people do not have more than 6 months income in the Bank and 2 years of no work would have a significant effect on their financial well being. Your income is the big domino which if it falls over knocks over all the other dominos (your regular expenses) once it falls over.

A sole trader or business owner has a more serious problem in that any employees working for the business would be entitled to redundancy payments, if the business had to let some staff go as a result of the illness.

If a sole trader dies and the business cannot continue the redundancy payments must be paid out of the deceased estate leaving less money for any dependents.

So what are your options?

• An arranged overdraft facility before you need it is a good idea
• Arrange a loan and invest the money in a deposit account. Yes the interest rate on the loan will be higher than the return on the deposit account, but it may be worthwhile to ensure you have a back up plan, as loans are difficult to get when you really need them
• Arrange a flexible mortgage – same issues as above
• The best solution – Arrange a good income protection plan with your independent financial planner

What are the benefits of an income protection plan?

Look at it as a salary replacement plan. If you can’t work due to illness it pays out a tax free (if you pay the premiums personally) income after an agreed period usually 3 – 6 months. This payment should increase with inflation to continue paying you until age 60-65.

Although the benefits will not entirely replace your salary if you can’t work, you are unlikely to be spending as much either. It will however take away most of the financial worries that usually come with this type of health problem.

A business owner could even use the income to ensure he can pay someone else to do his job so his business continues to make profits.

Anything else to watch out for?

Yes, although worthwhile, these plans are quite complicated with a great many terms and conditions. Make sure you get good independent financial advice from a fee based financial adviser. (The commission levels vary from different providers). We usually find that a mix of Income protection and a Life and Critical illness plans works best.

Essentially dont take large risks that you dont have to. That’s what insurance companies are for.