PLAN’S GUIDE TO BUSINESS PROTECTION POLICIES
Why would my company need Key Person Insurance?
Key Person Insurance will help your business protect itself should anything unforeseen happen to any of its most crucial members of staff. You can opt for both life cover and critical illness cover under this policy type. Key Person Insurance will help provide the business with the necessary funds to remain financially stable following the loss of a key employee.
Key Person Insurance might be dismissed by some business owners as a policy designed for larger corporations. However small businesses and start-ups should also seriously consider Key Person Insurance as their output often relies heavily on a select few.
As the business instructs the Key Person policy to be incepted it will be responsible for covering the cost of premiums. The business will receive a sum of money if the key employee passes away or becomes critically ill. The aim of this amount is to assist the business with remaining financially stable by making up for lost profits as well as potentially paying towards recruitment costs.
The amount of Key Person cover your firm will need can be determined using various methods. It could be calculated on the basis of a multiple of salary. Alternatively, it could be based on how much profit the key employee in question generates. How much it potentially would cost to replace the team member is another possible way of gauging the necessary sum insured.
The crucial point is that the sum should help ensure that the business remains viable and alleviates uncertainty in a challenging period. A Key Person Insurance policy should provide peace of mind that your business will be able to manage the financial fallout that results from losing an important contributor to your operation.
You should take time to contemplate fully the potential consequences of your key employees. The loss could result in reduced profit, a lack of essential skills that are difficult to replace or the absence of vital management resource. All of which can hit a business hard. The financial pay-out from this type of policy can be used to overcome a variety of challenging circumstances.
Both small and new businesses may benefit from Key Person Insurance because these types of businesses often rely heavily on a small number of people.
What is Business Loan Protection?
It is a routine part of business to have one or more outstanding business loans secured against them, whether it is commercial lending, director’s loans, overdrafts or credit cards. In some cases, these business loans are secured against the business owner, director or other key individuals within the company.
If the person liable for the loan was to pass away, how would the business fare in paying off that debt? If it would cause serious financial implications for the business, you might want to consider taking out a business loan protection policy.
Business Loan Protection can also sometimes be known as business liability or commercial debt insurance policies.
How does Business Loan protection work?
If a guarantor of a business loan, such as an owner, director or other individual, was to pass away the lenders may ask for the debt to be repaid immediately. This can sometimes cause financial strain on the business, which is already suffering from the loss of a key person.
Business Loan Protection can provide the necessary pay-out for the business to cover the outstanding debt. A policy of this kind works by covering the life of the key individual(s), so that any money from a claim can be used to clear the outstanding debt or loan.
Business Loan Protection is usually in the form of life insurance on its own or with critical illness cover included. Premiums are usually paid by the business.
Many lending options for businesses are caveated with this requirement, but the policy can still provide an immediate lump sum to help with any debt.
How much Business Loan protection cover do you need?
Deciding on the right amount of cover for a Business Loan Protection policy is quite simple. The level of cover should reflect the amount that would be needed to repay the outstanding debt or loan. The policy could be set on a level or decreasing basis, depending on the type of borrowing you need to pay off.
The monthly premiums will be calculated based on how much borrowing the business has taken out, amongst other factors.
Why should you consider Business Loan protection?
You never know what is round the corner. Business Loan protection can protect your business against the unexpected, minimising the financial hardship that may come from losing a key member of the team.
Having to suddenly repay outstanding debts could cause financial burden and may even put the future of the business at risk.
A Business Loan Protection policy can help to stabilise the business, providing a way for loans and debts to be covered. It allows the business to clear any lending that must be paid back and to help trading to continue as normal.
If you would like some further guidance on whether your business would benefit from taking out Business Loan Protection, get in touch today.
What is Shareholder Protection Insurance?
Your business is no doubt one of your most valuable assets. One of the most difficult events to occur within a business is the loss of a shareholder, which can impact the business hugely. Fortunately, you can protect against this with Shareholder Protection.
Shareholder Protection can also be known as succession planning as it can remove a sense of uncertainty following the death of a shareholder, or if they were to be diagnosed with a serious illness.
When a shareholder of a business passes away, the shares often become part of their estate which usually goes to the family. This means the family now has control over the shares and what to do with them. In some cases, this can result in a potentially inexperienced family member trying to have influence over the business, or they may simply just sell the shares to the highest bidder.
Shareholder Protection provides the remaining shareholders with the funds to buy the shares from the family. This can provide peace of mind to the shareholders and protect the future of the business.
How does Shareholder Protection work?
Losing a key shareholder of the business can be difficult enough without then having to work out how you are going to stabilise the company moving forward. Shareholder Protection provides that much-needed safety net when the unexpected happens.
Shareholder Protection will pay out a lump sum in the event of a successful claim, on a valid policy. The level of cover is based on the value of each shareholder’s individual shares. It is important to speak to a specialist Business insurance adviser when trying to value the shares in any Business.
The premiums are calculated based on the level of risk to the insurer, which is dependent on age, lifestyle and any pre-existing health conditions. The cost may also increase if you choose to include critical illness cover.
The benefits of Shareholder Protection
Shareholder protection allows you to have a ready-made succession plan in place. It can provide the remaining shareholders with a plan of how the insured shareholder’s part of the business will be allocated.
For example, imagine you have 3 shareholders of a business. Shareholder 1 owns 50% of the business, which is worth £5m, while shareholders 2 and 3 own 25% each. If shareholder 1 passed away, the insurance policy would provide the capital for shareholders 2 and 3 to buy the shares from the family or estate of the deceased shareholder, and they would now own 50% each.
Without the policy, the family of shareholder 1 may be forced to sell the shares elsewhere if the remaining shareholders could not raise the funds.
This type of protection also allows you to purchase the equity without taking cash out of the business or having to borrow the funds, which will give the business a bigger chance of returning to some sort of normality.
If you would like some further guidance on whether your business would benefit from taking out Shareholder Protection Insurance, get in touch today.