Most business owners wouldn’t dream of running their company uninsured. From public liability cover to assets insurance, there is a lot at stake if a business functions unprotected.
However the number of businesses with life assurance and critical illness cover for their owners and key employees is extremely low by comparison. It may not be the most obvious choice, but the consequences of losing an individual who contributes substantially to profits can be catastrophic to the future of a business.
One of the most pressing problems for businesses that lose an owner is that any loans that the deceased person has guaranteed solely or jointly may need to be repaid immediately.
This can include overdrafts and commercial mortgages. Loan protection can provide a lump sum to pay off company debts without impacting the business output.
For many businesses it is simply not possible to come up with these sorts of funds at short notice.
As well as dealing with any debt repayments, many businesses are likely to lose profits when a key person dies or suffers a critical illness. For many companies this shortfall could be a stretch too far. By taking out a “Key Person” or “Key Man” policy the company could receive a lump sum to make up for lost profits.
This money can also be used to fund the recruitment process. Anyone whose performance is vital to the success of a business is likely to be difficult to replace. The search for a suitable candidate may be lengthy and costly.
Many businesses would struggle to cover these costs without adequate insurance. It is important to remember that the loss of an individual who is integral to a business may impact the capacity of the business to borrow.
Another problem that many people overlook is the inheritance of shares when a shareholder dies.
Without adequate protection the deceased person’s shares may pass to family members along with their estate. These individuals can choose to become active in the business or they can sell their shares to whomever they see fit. This can be damaging to a business and it is easy to protect against these sorts of issues with share protection.
A common misconception about business protection is that it is overly complicated or not suitable for certain businesses. In reality it is remarkably straight forward to get appropriate cover and the large number of providers competing in the market means that specific requirements can be tailored for.
Some policies even offer instant cover so that a business is protected while their application is being processed. There can be tax benefits too as Key Person cover may be eligible for tax relief subject to conditions.
Every business should assess how vulnerable they are to the loss of an owner, shareholder or key employee if they wish to safeguard the future of their company.
With the right protection there is no need for a company to sink under these circumstances. The policies are there. It is not rocket science. It could provide the life-line that your company needs at the most difficult of times.