Written by Meritas Financial Advisors based in Dublin 18.
Your business may have taken the steps to protect against future catastrophes or maybe your business has a continuity plan in place, but very often businesses don’t consider protecting the things that could put an end to the company and its income – the incapacity or death of a Business Owner or ‘Key’ people within the company.
What is Business Protection?
Business Protection is a type of insurance that helps to protect a business against the possible financial losses of incapacity/death of a Business Owner or their key employees. There are various types of business protection to consider but the two most common are Key Person Protection and Shareholder/Partnership Protection.
Key Person Protection
A company’s greatest asset are its employees – without these any business would not succeed. Within a business there may be one or several employees who stand out as being key contributors to the company’s success. These employees’ skills, knowledge and overall contribution are considered uniquely valuable to the company and its ability to maintain turnover/generate profits.
Key Person Protection helps insure your business against the financial losses that may arise if a key person within your business becomes incapacitated or dies.
Why should you consider Key Person Protection?
Losing a key employee can cause a great financial loss within the business. With Key Person Protection in place, a claim can be made if a key person dies or becomes ill or incapacitated.
This payout can be used by the business to meet financial needs such as:
- Repayment of any loans/overdrafts (including personal investments which must be repaid by the business in the event of death)
- The cost of recruiting and training a replacement
- Potential restructuring of the company
- Investment in the business
- Making up for possible loss of revenue due to – Loss of knowledge/expertise / Reduced confidence from customers and suppliers / Effect on share price
If your business fails and there aren’t sufficient assets to cover the debts then a lender could seek repayment from the guarantor or their estate (which could mean personal assets – including homes – might be at risk) or the business may have to sell assets at short notice or could be forced into administration.
Shareholder Protection is a life insurance plan which can be taken out for each director or partner of a company.
If the death of a director or partner was to occur, the company’s Shareholder Protection plan will pay out a lump sum. This can be used to buy back the deceased director shareholding from their next of kin. It ensures security for the company and also peace of mind for the deceased’s family members.
Why should you consider Shareholder/Partnership Protection?
All businesses should have a plan in place detailing what would happen on the death of an owner/partner. If there is no Protection in place and a shareholder dies, their shares are likely to pass to their family members who may look to get involved with the business or could possibly look at selling their share of the business to someone else outside of the business (including a competitor).
With the right type of protection in place, shares could be redistributed automatically or rights given on who can purchase the shares.
Regardless of any Business Protection in place, separate policies can also be taken out through the business to financially protect the family / beneficiaries of the Director(s)/Employee(s).
Whilst the day to day running of your business is always priority, overlooking the risks that could occur and not having Business Protection in place could be a very costly oversight that would damage the future of your business.