What is Business Protection?
Take a few moments to run through these questions and see how protected your business really is.…
Which of the following would damage your business the most?
- Company vehicle and tools are stolen
- A vital piece of machinery breaks down
- The Property is damaged by vandals
- You damage a customer’s property
- Your foreman suffers a heart attack
- A business owner, director or partner suddenly dies
It’s the people that make your business run smoothly, and without them (or even yourself) your business would have a hard time functioning.
Are you insured for the most damaging events?
Running a business always involves an element of uncertainty. Premises can be rebuilt, content and material assets can be replaced, but the recovery of a person is not nearly as certain. This all makes it especially important that you have the relevant protection policies in place to help ensure that your business can survive the loss of an individual, including yourself.
Ask yourself these questions:
- Does my business rely heavily on one or a few key individuals?
- Could my business survive without those key individuals?
- What could go wrong if a Director/Partner were to die or be diagnosed with a critical illness?
- How would I retain control of the business?
- Do I have a written agreement in place as to what would happen?
If a key person were to die or was diagnosed with a critical illness:
- How would your staff feel?
- How would your customers feel?
- How would your Bank Manager feel?
- How would your competitors react?
- How would your debtors react?
- How would your creditors react?
These people might then have some questions to ask you, such as:
- How much money would you need to keep the business going?
- Where would this money come from?
Business protection refers to a range of insurance products designed to help businesses protect themselves financially in the event of the death, critical illness, or disability of a key person within the company. Key people may include business owners, directors, key employees, or individuals with specialised skills whose contributions are crucial to the company’s success.
THERE ARE FOUR MAIN TYPES OF BUSINESS PROTECTION
- Shareholder Protection Insurance is designed to provide a solution for businesses with multiple owners (shareholders) in the event that one of them dies or becomes critically ill.
- The policy pays out a lump sum to the remaining shareholders, allowing them to buy the shares of the deceased or critically ill shareholder’s estate/beneficiaries. This ensures a smooth transition of ownership and helps maintain stability within the business.
- Shareholder Protection is often used in conjunction with a legal agreement, such as a shareholder agreement, to define the terms of the share purchase and ensure a fair and orderly process.
- A cross-option agreement is usually used to ensure that there is the compulsion of the buying and/or selling of shares.
Key Person Protection
- Key Person Protection provides a financial safety net for a business in the event that a key person dies, becomes critically ill, or is unable to work due to disability.
- The policy pays out a lump sum to the business to help cover financial losses, recruit and train a replacement, or assist in other ways to mitigate the impact of the key person’s absence.
- The payout can be used for various purposes, such as covering lost profits, repaying debts, or ensuring a smooth transition for the business.
Business Loan Protection
- Business Loan Protection refers to insurance cover that helps a business repay outstanding loans in the event of the death, critical illness, or disability of a key person responsible for a business loan.
- This key person is often someone whose role is crucial to the company’s financial stability, and their absence or inability to work may impact the business’s ability to meet its financial obligations.
- Banks/lenders may be within their rights to ask for loans to be immediately repaid upon the passing of a Director, so it’s important to consider whether a business has the capital available should that scenario occur.
Relevant Life Insurance
- Relevant Life Insurance is a life insurance policy taken out by an employer to provide a death-in-service benefit for an employee.
- If the employee covered by the policy dies while employed by the company, the payout goes to the employee’s beneficiaries, via a Trust. It can help provide financial support for the employee’s family.
- Relevant Life Insurance is often used because it can be tax-efficient for both the employer and the employee, offering potential savings on income tax and National Insurance contributions.
How can we help?
Business protection is a strategic financial planning tool that helps businesses safeguard against the financial impact of losing key individuals.
Our team of experts can help business owners to assess their unique needs and risks to determine the appropriate types and levels of business protection insurance for their specific circumstances.
In particular, the tax treatment of insurance premiums can vary depending on the type of insurance and the purpose for which it is taken out.