As a business owner, you’ll have been watching financial and economic developments more closely than ever over recent months.
The year so far has seen a global pandemic, a UK-wide lockdown, and associated stock market volatility.
Guarding against the unexpected has rarely seemed so important.
Business Protection could help to secure your business against the unforeseen, protecting your key people, your shareholders, and your family.
What is Business Protection Insurance?
Business Protection Insurance protects your business against the loss of its most important asset: its key people.
Like other forms of insurance, Business Protection provides cover if a key member of staff dies, or – in some cases – becomes critically ill. Protecting against the loss of a colleague can give all business partners and their families financial peace of mind.
Depending on the type of insurance you opt for, a payout might help to pay off your business’s debts, or buy-back the shares of a deceased colleague, ensuring you and your business partners retain control over the business.
Strict rules exist around buy-back of shares, so speak to us if you have any concerns or queries about the Business Protection Insurance you might want to take out.
Protecting yourself against the unexpected could save you time, money, and stress at an already traumatic time. It might even save your business.
There are three main types of Business Protection Insurance to consider.
1. Loan protection
Whether in the form of an overdraft, a commercial mortgage, or your own investment, your small business will likely have some debt. Legal & General suggest that average company borrowing is around £344,000, split between personal loans, business loans, credit cards and overdrafts.
If the death of a colleague would make repayment of that debt difficult, consider Business Loan Protection. It could be used to fully cover any outstanding debt in the event of a colleague’s death.
You might have invested your own money in the company too.
If so, you’ll want to keep track of the amount you’ve paid in or taken out, once the business becomes profitable. If you run the business with other directors, safeguard your investment by setting up a Directors’ Loan account.
Remember, Directors’ loans to the business must be repaid in the event of the director’s death. Without life insurance – either held by the director or the business – this might prove difficult.
Business Loan Protection can be used to cover the cost of this liability.
2. Key person
Your small or medium-sized business will likely be dependent on a few key people. Your business partner might have expert knowledge or maybe you have one colleague working on business relationships with clients.
How at risk would the future of your business be if you lost a key person?
Source: Legal & General
Key Person Protection is Life Insurance designed to pay out if one of your key personnel dies. The plan might have Critical Illness cover too.
The payout could be used to cover the cost of advertising for, or training, a new member of staff to replace the expert knowledge lost. It might also cover lost profits if the business loses clients who are unwilling to work with a different member of your team.
Key Person Protection can offer stability at a difficult time.
3. Share protection
If a colleague and shareholder die, their shareholding will likely pass to a member of the deceased’s family. The new shareholders may be happy as silent partners. Equally, they might decide to take a more active role in the business and want to be part of decision-making processes too.
This could result in you losing an element of control in your own business.
One option would be to buy back the deceased shares but raising the capital to do this might be difficult.
Share Protection is a Life Insurance policy paid out on the death of a shareholder. The money can be used to buy the deceased shares from the beneficiaries of their estate, allowing you to retain control of your company.
This can be set up using a Share Protection Arrangement whereby each owner takes out a Life Insurance policy equal to their shareholding, writing it in trust to the other owners of the business.
Get in touch
If you have dependents reliant on the income from your business, you might find Business Protection Insurance gives you enormous peace of mind.
The death of a fellow director, business partner, or key person within your business will be a stressful and difficult time but it need not have serious consequences for the business itself. Protecting your company, yourself, and your family should the unexpected happen can be done in several different ways.
Share Protection Agreements, rules around share buy-backs, and Directors’ Loans can be complex but we’re here to help. If you’d like to discuss the need for Business Protection Insurance, please contact us today.
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