Most business owners understand the value of insurance within their business, however, it can be easy to forget the most important part of your business when it comes to insurance - people! If the people that make your business tick are no longer able to do so, then you can’t protect the business. There are three key areas where insurance helps protect a business:
1. Key person protection
2. Shareholder protection
3. Relevant Life Cover
1. Key person protection
Some businesses don't consider the financial implications of losing a key member of staff.
Negative effects can include:
Loss of profits or sales
The cost of finding and training a replacement
The potential loss of customers and suppliers, if the key staff member was their main contact
Key Person Protection is basically life insurance, with or without a critical illness cover option, which a business takes out on important members of staff. This can provide some financial stability in the event of a key member of staff being taken critically ill or dying. The business pays the premiums, and if the key person dies or becomes critically ill during the policy term, the policy will pay out the agreed sum to the business. This financial payout can help ensure the business remains viable, continues to trade, and has the opportunity to find a suitable replacement.
2. Shareholder Protection
When do you need Share Protection?
It is always possible that whoever inherits a part of a business may choose to be a silent partner, but there is no guarantee of this. Some will want a more active role and may have very different ideas on the firm should be doing. Another possibility is that the beneficiary may want to sell their stake. But if the remaining owners cant find the funds to buy this shareholding, it could be sold to a competitor. Of course, the ideal solution is for the remaining owners to buy back the shares, giving the family a cash sum while ensuring they retain control of the business.
The question is, will they be able to raise the funds to do this? This is where Share Protection insurance can help. Share Protection insurance works by providing a payout to buy back shares, helping owners stabilise the business, and ensure it is kept in their hands and not someone else's. There are two parts to this insurance:
A life insurance policy: This will payout on the death of one of the owners
A legal agreement: This sets out when and how these shares will be bought back and at what price.
3. Relevant Life Plan
A Relevant Life Plan is a life insurance policy that is paid for by the business to cover directors or employees. If the insured person dies, it is the family that receives the payout, not the business itself. This type of insurance is also sometimes known as a “death-in-service” benefit. Many larger employers have a policy that covers all their staff, but such “group schemes” are usually provided as part of the pension scheme.
For smaller businesses, perhaps employing just a couple of people, it isn’t always possible or cost-effective to set up one of these collective policies. It’s important to remember that a Relevant Life Plan will only cover those who take a salary from the business. If you are a sole trader or a partner, you are not eligible for this type of insurance policy. However, this does not stop you from buying regular life insurance out of your own income in a normal way. A Relevant Life Plan policy can be used to cover company directors and those who own their own business provided it is registered as a company in the UK and they take a PAYE salary from the enterprise.
REGULATORY STATUS OF THE SERVICES/ ADVICE
Inchmead Financial Services Limited is a joint venture with Beaufort Financial (Wokingham) Ltd. Beaufort Financial is a trading name of Beaufort Financial (Wokingham) Ltd, an appointed representative of Beaufort Financial Planning Limited which is authorised and regulated by the Financial Conduct Authority. Beaufort Financial (Wokingham) Ltd is registered in England & Wales. Company No. 12495066.