Business Protection
Prospect Mortgage Services provide independent, sound and honest advice for your mortgage and protection needs.
Why think about Business Protection?
Small and mid-size businesses form the backbone of the UK economy, with small and medium-sized enterprises (SMEs) thriving in almost every sector of business. Running an SME can be hugely rewarding, both personally and financially, but it’s a big responsibility and it isn’t without risk. It’s important to understand the challenges and potential pitfalls, and to think of ways of minimizing their impact.
Potential issues
If you are already running a small business, it’s highly likely that you will have some form of commercial insurance in place. For example, if you have staff, it is obligatory for you to have employers’ liability insurance; similarly, any commercial vehicles will need motor insurance. You can insure your premises, your IT equipment, your stock, any specialist machinery and so on. Most business owners are aware of this and seek appropriate cover. However, many companies are far less likely to insure the health, or the lives, of the key people who keep the business running and successful.
Some scenario’s to think about:
What if a business partner suddenly died? Would the business have the money to buy his share of the business from his family or to pay back loans that had been underwritten based on his personal guarantee?
What if a key member of staff became critically ill? Would there be the funds to offer some support and/or pay for a replacement to ensure the business is still able to continue whilst they recover?
For many companies such an event could prove catastrophic. Insurance can help lessen the financial impact of such events in a number of ways. A business may not necessarily need the full range of policies, and much will depend on the size and type of business arrangement.
Potential solutions
Key Person Protection
For many businesses, their success depends on a number of key individuals. So losing one of them can have a serious impact on the financial health of the business. Key Person Protection is designed to help your business in the event of serious illness, disability or death to one or more key employees. If such an event happens, the plan pays out a lump sum to the business to cover any loss in revenue or profits and possibly to help fund the hire of a replacement, thus helping to keep the business on track.
Shareholder and Partnership Protection
If a business owner dies or suffers a terminal illness, their share of the business usually passes to their beneficiaries. It is often the case that the dependants are not connected with the business, and do not necessarily see the value in having shares. As a result without proper planning thare can be serious consequences for the financial security of the business and also to the shareholder’s family.
In most cases, the family would prefer to inherit cash rather than an interest in a business about which they know little. The Family might struggle to find a buyer for their shares on the open market and the other Company Directors are unlikely to want these sold to just anyone. To regain control of the business, surviving business owners may need to buy that individual’s part of the business. Many businesses don’t have the money to do this and it can be costly to borrow what might be needed.
Shareholder and Partnership Protection will pay a lump sum to a business, if a business owner dies or suffers a terminal illness. This provides the capital to enable the surviving business owners to buy that individual’s share of the business from their beneficiries – allowing them to keep control.
Business Loan Protection
If a business owner dies or suffers a terminal illness, lenders may have the right to demand that any outstanding loans are paid back. This may include any Director Loans which might be registered to the Company and become payable to the Director’s Estate. These could be difficult to pay off at short notice.
In the event you lose a business partner, you may want or need to repay outstanding business loans, some of which may have personal guarantees or have to be repaid when someone dies. Business Loan Protection provides peace of mind, providing a business a lump sum to repay any outstanding loans in the event of the death.
Protecting Your Employees
Recruitment and retention of skilled and reliable staff is a key challenge for any small and medium sized firm. An Employer offering Employee Benefits (such as a form of sick pay or death in service cover) can help attract and retain talent, while demonstrating an employer’s duty of care. A group income protection plan or group death in service plan might be the ideal solution.