A business is only as good as its people and although companies will buy insurance for what they believe to be vital to business continuity, such as the buildings and equipment, they often neglect the most important assets of the business, the key individuals who drive the profitability.
When a business loses a key person through illness or death, it can have a major impact on the future success of that company and in extreme cases can even lead to its closure. By including business life insurance in the overall business plan, owners can protect themselves against such situations and ensure the business can survive and continue trading even under the most challenging circumstances.
Business insurance may require additional legal advice for the setting up of formal documents such as shareholder agreements or trusts. Therefore it is important that the business owner speaks to their professional intermediary to identify exactly what they want to achieve to safeguard the business.
Keyman Cover -This type of life insurance helps protect against the loss of an integral employee or director whose illness or death could have serious financial repercussions on the company. Losing a key person can be a disaster for any business as their loss could leave the company without vital skills and knowledge and can quickly lead to a loss of confidence from its customers and suppliers. Effecting a keyman life policy is relatively simple with the company owning and paying for the policy on the life of the key employee. In the event of a claim the policy benefits are paid directly to the company.
Loan Protection – Many businesses rely on start-up loans or financing to expand operations and the responsibility to repay them will often rest with a few key people, normally the shareholders. Often a lender will insist that a personal guarantee is provided as security against the loan and this typically means that personal or business assets are placed at risk. An alternative is to take out life insurance on any individual who is responsible for a loan and if there is a claim on that person, the policy benefits can be used to repay the outstanding debt obligations rather than the lender claiming from the personal assets of the deceased.
Partnership Protection – The sudden death of a partner in a business can cause significant problems, for not only the family of the deceased, but also the remaining partner(s). Without having partnership insurance in place, the surviving partner(s) could lose control of some of the business, or in certain circumstances, all the business. A solution is to take out life insurance on each of the partners’ lives so that if there is a claim on any individual, the policy benefits can be used to provide financial support to the surviving partner(s) and give them the necessary funds to buy the shares of the deceased.
Shareholder Protection – If a shareholder dies the shares will normally be passed to the immediate family of the deceased and the surviving shareholders may then have no control over what happens to the shares. The next of kin may decide to hold onto the equity or if there is no liquidity in the business, the shares may even be sold to an outside party or a competitor. Shareholder protection insurance, alongside a suitable legal agreement, provides the surviving shareholders with the capital required to buy the shares from the estate of the deceased.
When a business loses a key person through illness or death it can have a major impact on the future success of the company and in extreme cases can even lead to the closure of the business.