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Protecting your Business

Business Protection is an important component in the management of risk within a business.

It is important for all businesses to identify and manage their risks. Business Protection can be a cost effective and tax efficient way to safeguard the future of a business.

Most people who run a business consider insuring its physical assets (buildings and contents, vehicles, etc.) as part of their basic running costs. At the same time many acknowledge that a business’s greatest asset is its people. This leads to the conclusion that insuring the key people within an organisation should be given greater consideration.  

A business protection policy could help ensure that a business is able to:

  • Replace key employees
  • Remain in the ownership and control of the surviving stakeholders
  • Protect its profits
  • Pay its debts

All businesses are unique and will require different types and levels of protection. However a business can insure against the unintended consequences of a death or serious illness of a key individual in broadly one of the following three ways:

1. Key Person Protection – provides protection for a business against the loss of one of its key employees (be they creatively, technically or strategically vital) as a result of death or a serious illness.

In this situation the insurer pays out a lump sum which could then be used for the recruitment and/or training of a replacement employee. Or alternatively the sum compensates the business for any disruption due to a drop in sales or fall in profits. With this protection the business stands a better chance of trading through the disruption.

2. Share Protection – helps any remaining shareholders or partners retain control of their business in the event one of them dies or is diagnosed with a serious illness.

This is achieved by providing the remaining stakeholders with a lump sum which can then be used to purchase the ex shareholder’s share of the business. This ensures that the business can continue without the involvement of any other unwanted third parties (such as beneficiaries of the ex shareholder). In return, the beneficiaries receive an agreed payment, giving them some financial security.

3. Business Loan Protection – ensures that loans can be repaid in the event the guarantor dies or is diagnosed with a serious illness.

As above this situation would also involve the payment of a lump sum. This protection is often a condition of the lender’s on grant of any loan.

 

 

 

 

 

 

 

 

 

 

Date: 25th June, 2014
Author: Michael Lapham

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