The Real-World Relationship: Insurance Premiums

In the UK business landscape, understanding how insurance premiums relate to what you're protecting is crucial. We need to remove the mindset that insurance premiums are there to only penalize you, but they are relative to your situation.

We are used to the concept that if we earn more, we are taxed more.

A client owns a range rover, the other clients owns a fiesta. I think we know who pays more, right?!

We need to insure more, it costs more. Let me give you some proper examples!

Real Examples - Income protection

A client of mine is earning ￡500k a year and the maximum benefit he could obtain from an insurer was ￡15,000 a month, tax free. There premium was ￡350 per month.

Now imagine, if you earn ￡50k a year and you can get ￡2800 approx. per month. Your premium would be around ￡50 - 70 per month.

As you can see insurance premiums are relative, and they're not supposed to make your eyes water!

Examples below with how this works with Business Protection.

Key Person Insurance: Tailored to Business Impact

Let's! Consider two different businesses:

Tech Startup:

• Key Person: CTO with unique expertise
• Company Valuation: ￡5 million
• Annual Profit: ￡500,000
• Key Person Insurance: ￡2 million coverage
• Premium: Approximately ￡200-￡300 per month

Local Retail Store:

• Key Person: Store Manager
• Annual Revenue: ￡300,000
• Key Person Insurance: ￡150,000 coverage
• Premium: Approximately ￡30-￡50 per month

You can see how these premiums are relative to your business needs.

The Affordability Principle

The key principle remains: if you cannot afford to replace it, you should insure it. This is especially true for businesses where the loss of key personnel, shareholders, or employee productivity could be catastrophic.

Consider a business owner earning ￡100,000 annually:

• Income Protection (￡5,000 monthly benefit): ~￡100-￡150 per month
• The alternative: Potentially losing ￡100,000 annual income if unable to work

We both know government benefits are not suitable and your only around 3 months away before they could repossess your house. Sorry to scare you, but who can sustain this person for ￡100k a year.. or would want too?

Striking the Right Balance

To ensure you're adequately protected without overpaying:

1. Regular Reviews: As your business grows, so should your coverage.
2. Tailored Coverage: Work with insurance experts to create a protection plan that precisely matches your business's unique risks and value.
3. Tax Efficiency: Some policies, like Relevant Life Plans, offer tax benefits that can offset premium costs.
4. Employee Benefit Optimization: Consider scalable options that grow with your business.

In conclusion, while managing costs is crucial, it's equally important to ensure your business is adequately protected. The true cost of being underinsured far outweighs the premiums you'll pay for comprehensive coverage. Remember, the premium you pay is relative to what you're protecting and if you can't afford to replace it, you should insure it.