• The Business Owner

Protecting your business from the worst eventualities

Running a business is never easy – and the past year in particular has certainly brought that statement into sharp focus.

One of the big questions – perhaps the biggest – that businesses have to face is what would happen to their business if a key member of the team were to die or suffer critical illness. Sadly, the coronavirus pandemic has brought this question uppermost in many owners’ minds and provided them with the impetus to review their current protection.

Businesses spend a lot of time and money insuring their property, machinery and equipment and on a range of benefits for their staff. However, in our experience, far fewer seem to consider the impact of the loss of a key person or business owner on the business itself. This is despite research published by Legal and General in 2019 that found 52% of businesses say they would cease trading in under a year if a key person died or became critically ill.

So, what can businesses do to protect themselves against these kinds of risk? There are a number of options available.

Key Person Protection

Businesses can take out an insurance policy (with or without critical illness cover) to protect their business against the loss of a key person or business owner and the resulting impact on profitability.

The definition of ‘key person’ is anyone who has specialist skills, knowledge or contacts and whose loss to the business would cause significant financial difficulty. In the event that the insured person dies (or suffers from a critical illness, if covered), the business would receive a financial lump sum in compensation, which can sometimes be payable in instalments.

Shareholder / Partnership Protection Plans

These plans allow surviving partners or directors of a business to remain in control, should the worst happen to one of them.

Shareholder / Partnership protection policies pay a sum to the remaining shareholders / partners, which enables them to cover the cost of buying all or some of the shares from the shareholder’s / partner’s estate, whilst ensuring that the deceased’s family members receive a fair value.

Without this protection, the deceased’s share in the business may be passed to their family. This could result in the surviving shareholders / partners losing control of some or all of the business, or the family could decide to become involved with the business, or decide to sell – perhaps to a competitor.

Business Loan Protection

According to the Legal and General research mentioned above, over half of businesses have some form of borrowing; the average amount in their survey being £175,000. If your business takes out Business Loan Protection, it will pay off outstanding loans if the business owner(s) of that loan were to die or to fall critically ill (if covered).

Businesses face many risks, but many of them can be insured against. By taking out one or more of the policies outlined above, your business can gain peace of mind that should the worst happen, you will be protected. Although there is obviously a cost associated with the policies, they could make the difference between your business surviving or dying.

Source: ‘Business Protection: State of the Nation’s SMEs report’, 6 th edition, published by Legal and General, October 2019.

For more information on these topics, please get in touch with Marcus Gomery from Brunsdon Financial Services Ltd.