Man down! Is your business protected if the worst were to happen?
1st February 2018
Most businesses take sensible precautions when it comes to insuring against the most obvious physical risks, but many are failing to cover one of the most important assets of all – their key people. None of us want to think about dying or becoming ill but some sensible precautions can easily be put in place, which can protect your business, your colleagues and your family if something were to happen to you. For businesses that employ staff, use vehicles or provide certain types of professional advice, it is mandatory to have employers’ liability, motor and professional indemnity insurance. Many also opt for additional forms of cover ranging from property and contents to public liability and health insurance.
Yet frequently there is no protection in place for the critical illness or death of the business’ key people – such as the business owner, director, partner or an employee with specialist skills. Losing key people can have a serious impact on your business, from losing skills and knowledge, through to a change of ownership if there isn’t enough cash to buy back their share of the business.
The good news is that there is a range of options available to cover the most crucial people in your organisation.
Key Person Insurance
Many small businesses rely heavily on one person, or a small number of individuals, where their skills, knowledge and experience are vital to the success of the business.
Key person (or key man) insurance safeguards your business against financial losses should something happen to a key member of staff. Policies cover individuals for death, or death and critical illness, and will pay the business for costs such as loss of profits, paying debts or training a new member of staff. It can be challenging to calculate an individual’s value to the business, but usually involves considering their salary and their contribution to the profitability of the business.
Director/Partnership Share Protection
Company owners, directors and partners have a significant stake in a business so it’s important to consider what would happen to their shares and control of the business if something were to happen to them. If a shareholder became critically ill or died without any protection in place, their shares would be likely to go to their next of kin. A share protection policy covers for this eventuality, so that the remaining owners are able to buy the shares and stay in control of the business. This also provides protection for the outgoing shareholder’s family. The premium is based on the value of the individual’s share of the business.
Relevant Life Insurance
Relevant life cover is life insurance for employees. The policy it is taken out and paid for by the business to cover key employees in case of ‘death in service’. If the insured person passes away while working for the business, a cash lump sum is paid to the family of the deceased.
This is a very tax efficient way of providing life cover and is particularly suitable for directors of limited companies. It can also help businesses to attract and retain staff as part of an employee benefits’ package.
Lasting Power of Attorney
As well as ensuring you have a will, it is worth considering lasting power of attorney, which means appointing someone you trust to look after your financial affairs if you become incapacitated. It’s more common for people to think about this in terms of their personal finances but it could be a wise move if you have someone particular in mind who you would want to handle your business affairs in these circumstances.
Seeking professional advice about insuring your business is essential, as certain policies will be more appropriate than others for your circumstances and it may be possible to tweak existing cover to give you better protection. As trusted advisers, we can talk you through the options to make sure you have the most appropriate cover for your business and your personal circumstances.
For more information on protecting your business and its key people, please contact Thomas Dawe: