Businesses need safety net if the worst happens
GIVEN so much uncertainty over the last few years with a global pandemic, war and unrest impacting the wider world, plus the cost of inflation for households and businesses, one wonders where things are going and what our future holds.
Many are finding their finances stretched and looking at making cuts, an entirely understandable reaction.
Yet, is it really the moment to cut ‘protection’? The answer must be no.
Indeed, if anything, this is just when it is needed more than ever.
It is always important your business is covered in the event of turmoil, ensuring valued colleagues can keep working and support their families.
Do you have a safety net in place and access to sufficient funds in an emergency? Or do you have a protection gap? Disruption to a business can come in the form of the death of a shareholder or key individual, serious illness or injury.
How would the business survive the loss if there were no funds in place to get through the tough times?
This is where shareholder/ partnership protection, key person cover or loan protection comes in.
A shareholder protection policy provides a pay-out to allow shareholders, partners, or directors to purchase the stake of another.
Shareholder protection policies are a vital backstop.
If a shareholder becomes critically ill or dies, their loved ones could sell to an outsider even if this were against the wishes of the other parties.
Alternatively, the spouse or family might decide to keep the shares and become involved in the business. This could be just as unwelcome.
A shareholder protection arrangement is designed to resolve such problems.
Policies can be set up as either an own-life plan under business trust or a company-owned plan to buy back the shares of the deceased.
With own life under business trust, each participant obtains shareholder protection insurance in relation to their own life, which is written into trust for the business.
The policy will then pay out into the trust and used to purchase the holding of the dear departed.
Company share purchase is where the business takes out a policy on the lives of each shareholder.
The insurance disbursement goes to the business instead of a trust so it can buy out the part-owner, cancelling the equity so as to increase the percentage for the remaining stockholders.
Key person life cover kicks in should a key individual pass away.
Key person income protection cover helps the company to continue to provide a salary for that special individual, whilst generating funds to employ someone to step in and fulfil that role, thereby ensuring the firm continues to trade with the least amount of dislocation.
Key person cover is purchased through a business to cover an employee or director responsible for contributing to your net or gross profits.
For example, a managing director, sales executive, marketing manager, or anyone else who pulls in a significant percentage of revenue.
Is there a loan to the business, a mortgage or large overdraft?
How will this be repaid if the worst should happen to a vital member of the team?
How important is it to you to have funds in place to cover such eventualities?
You can include critical illness under these types of policies, but this will see the premium increasing by approximately five times the cost of life cover.
So, should you take out shareholder/partnership protection, key person cover or loan protection, whether it be for a death event or a serious illness?
Speak with a broker.
They will be able to advise and find you the most competitive quotes for your needs.