Business protection is there because your business is relied upon by you, your family and your employees and their families to provide security in various ways. Whether it be in the form of an income stream, pensions or even medical insurance.
Most businesses have contingency planning in place to protect it against challenges however business protection is often overlooked.
The loss of a shareholder, partner or key person can jeopardize everything you have worked so hard to achieve. In the same way personal and family protection is essential to protect your loved ones, business protection is essential to protect your business and employees.
There are various types of protection available for all types of business set ups, whether it be partnership, limited liability partnerships or a sole trader.
Types of cover include:
Adequate business protection can ensure your business continues with minimal disruption should one of your key employees becomes seriously Ill or even dies.
The aim of this guide is to simplify what is quite a complex area and outline the main types of business protection and how they work.
As always Expat Wealth Adviser is here to bring Knowledge, transparency and simplicity to the offshore financial services world. We are happy to answer any questions, give you a second opinion on any recommendations you have received or introduce you to one of our panel of insurance specialists.
Most businesses would be severely adversely affected if someone whom is vital to their profits couldn’t perform for whatever reason, however a business can insure against the risk of that been from serious or critical illness, terminal illness, total permanent disability or even death.
This cover would pay a lump sum directly to the employer and protects the business against things such as:
Key person protection has helped many business’s around the world protect against these types of eventualities. These simple, cost effective solutions give owners confidence in the continuity of their business allowing piece of mind to all whom might be affected.
Jeff is a specialist engineer for an aircraft engineering company. His expertise would be a great loss to the company.
The company would have to pay his salary of USD 125,000 for a full 12 months if he is taken critically ill and not be able to return to work. They would also have to pay someone else that would need to be recruited and trained at a cost of USD 50,000 in additional training and recruitment fees.
A first event life or earlier critical illness protection policy for USD 175,000 would provide adequate protection to the business
Ashley is a top sales person at a medical equipment company. Her revenue alone is USD 250,000 per annum due to her experience and contacts in the business which is around USD 150,000 higher than her nearest colleague. If she we’re not be able to perform due to illness or even death it would be a financial risk to the company.
A first event life or earlier critical illness cover for a sum of USD 450,000 would provide her earnings for 3 years and protect the business cash flow.
Protecting shareholders is another important part of protecting your business. Imagine if something unexpected happened to one of your fellow shareholders / partners and you suddenly had to find the funds to buy their shares.
Rarely do companies have such cash reserves especially if they are an SME. Not having the funds to buy the shares could lead to problems such as:
The good news is that an existing shareholder / partner wanting to sell his / her shares due to a critical or terminal illness, total permanent disability or their family wanting to sell their inherited shares should the person have died can be easily insured against with a simple shareholder protection policy.
Should you be that shareholder it would ensure your loved ones can receive a fair value for your shares which safe guards their future.
A simple life or critical illness protection policy would ensure your business and families of all the shareholders are protected with adequate financial compensation should anything unexpected happen.
It would provide compensation in the form of a lump sum paid to the deceased persons family in exchange for the their shares or paid directly to the shareholder should they be alive and suffering with a critical or terminal illness.
A clean break is usually the desired outcome but its only possible if the adequate and suitable cover has been out in place.
George and Andre, we’re business jointly owned a successful real estate company.
George suffered a heart attack and was taken to hospital where he suddenly died. George left all of his shares in the business to his wife Jane who was not involved in the business and had no intention of becoming involved.
The life insurance policy the company had taken out on his life paid out within 2 months and the proceeds we’re paid directly to Jane.
Relevant life cover, also known as death in service,’ is an insurance plan available to employees of companies that’s paid for by the company.
Its designed to pay out a lump sum to the employees’ family if the employee dies or to the employee if he / she becomes critically or terminally ill.
Not only does relevant life cover protect the families of the company’s employees, it will help attract high – caliber employees. The policy is owned and paid for by the company but arranged on an individual and life-of-another basis.
In certain more taxable jurisdictions, there are tax advantages which make it tax deductible as a business expense (unlike some group schemes). The benefits also do not form part of the deceased estate if they are UK domicile.
Companies in the UK provide on average between 20- and 30-times annual salary, in the middle east the bigger companies usually provide usually 4 times annual salary on death but nothing on illness.
For UK companies, shareholders qualify for relevant life cover as long as they are an employee also.
Has your company ever borrowed money from the bank, if so, the death of one of your directors or partners could cause the bank to demand immediate repayment?
There may also be an impact on your ability to repay the loan should one of your directors or partners suffers a critical illness or permanent disability.
This could put the company’s finances under serious strain.
3 friends own a property maintenance company that takes out a USD 250,000 business loan to be paid back over 5 years. The loan is to be used to buy for 5 new vans due to an increased demand for their services and, expand the business by online advertising and website improvements.
To protect themselves from the bank demanding repayment of the loan on one of their deaths they they take out a life only decreasing term insurance on each of their lives over a 5-year term.
I hope you found this useful.
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