Business protection is all about people. If you die or become incapacitated, who will replace you? If a key team member sadly passes away, who will cover their expertise and the profits they were generating, or maybe loan agreements signed in their name? We can arrange life cover for directors, set up a company will or a cross option agreement, and use key person cover during the process of sourcing a replacement MD or new business partner. Using trusts, we can also significantly reduce the amount of inheritance tax on bequeathed business interests and exposure to claims arising from creditors, divorce or remarriage, while protecting the ownership of the business. You can ensure each partner or director’s share of the business passes to the appropriate family member(s) or colleagues.
Do I need business protection if I am just a small business or sole trader?
The short answer is yes, if you want the business to survive a crisis. Part of our planning process is to go into this to examine exactly what your needs will be, what kind of losses you might face if you lose a key person and what kind of insurance you may need to cover a given scenario. A sole trader might just need adequate life insurance to cover the shortfall in their family’s finances when they die, but if you are relying on one or two other partners then you may need to consider a different kind of cover. It’s worth mentioning that permanent health insurance – which basically covers sick pay during a period of illness – is the most valuable insurance any self-employed person could possibly buy. Without it, you and your family could be high and dry if you are not able to cover your income while you are ill.
What types of business protection insurance are there?
Typically, insurance products relevant to business protection fall into these categories:
- Key person insurance
- Life insurance
- Critical illness insurance
- Business IT protection
The onus is entirely on the business owner(s) to identify where the risks lie in their business and make arrangements accordingly. In particular, with the rise of cloud storage and shared online resources, insurance to protect against IT breaches or failures has become much more important. In many circumstances, we are able to make business protection insurance very tax-efficient for the owner-manager.
What are the most common risks to business?
The most common risk to business that owners often fail to insure for is the death or illness of a key person, or of a key shareholder. The absence of either, and the aspects of the business they maintained, can result in a period of uncertainty at best, or the paralysis of the business at worst. The next most common risks are those that business owners will typically already know to insure for – employers and employee liability insurance to protect against damage or injury caused by an accident or failure, and buildings insurance to cover damage to or destruction of the business premises.
What happens if a business partner dies without a Will?
Even if you are insured against a key person’s death in your business, if your business partner dies without having left a Will giving instructions or passing powers to you or another member of your team, then the consequences could be catastrophic. You could be in a position where you can’t do anything that requires a counter-signature, write cheques or make decisions, and meanwhile suppliers can’t send you materials or stock because you have no method to pay them. It results in the paralysis of your business, and you risk ceasing to trade. A business might be able to keep running with a court-appointed executor until the transfer of assets is settled. But bear in mind also that the deceased partner’s shares might not be transferred to you. If your former partner’s spouse inherits the shares and choses to retain them, you are now in business with him or her, and they control your spending. How they want the business to be run and what priorities they have for the business assets may not be in line with your own (or your late partner’s) vision for the company. So, we recommend you consider drawing up a business Will to define your intentions for the ownership of the company should one of you sadly pass away.
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