Business Advice
Business Protection Insurance is a way of protecting your business. Essentially there are five elements to Business Protection Insurance:-
Business Protection Insurance clearly provides an all important safety net for all types of businesses. It is all too common for Businesses to view Business Protection Insurance as an optional extra. It would be a far safer way of trading to consider Business Protection Insurance as part of the business plan from the first day of trading. Businesses all over the UK cease trading for all sorts of reasons but many of which could be prevented had they had some form of Business Protection Insurance in place. So why is Business Protection Insurance necessary?
Business Protection Insurance ensures that you, your co-workers and the business itself are insured for the unexpected. When Business Protection Insurance is in place and you experience the unexpected you can:-
- Keep the business trading
- You can replace key individuals
- Protect corporate debt
- Buy out a shareholder if they become critically ill or buy their share from their estate if they die.
Key Person Inurance
Key Person is someone within the company who adds real value to its existence. These key people often have the most contacts, sell the most, and are passionate about the company’s future. Without them the company might not be. who is key to its continued success but without them the company or business would not survive. Surely these people are worth insuring?
To sum up, Key Person Insurance has more relevancy now than ever before. Think about those people in your company who make it what it is and will continue to be.
Many companies in the UK have 10 or less employees so at least one of these people is bound to be a key employee. That is, the employee is key to the companies ongoing survival. He or she could be a top salesperson, an IT professional who looks after the company website, a Director or just about anyone who strives to make the company the success it is today. So now try to imagine what it would be like if that person/s were to die suddenly or be diagnosed with a critical illness. What would happen to the company?,/
Shareholder/partner and Director Protection
The premature death of a shareholding director can cause serious financial problems for the deceased’s family. Equally it can also cause serious financial problems for the surviving directors who may have to raise capital to buy out the deceased’s shares in order to retain control of the business. Advance planning will ensure that the business can continue without disruption following such a loss.
On the death of a shareholding director, their share of the company passes to their estate. The deceased’s dependents may have no real interest or experience in the business. They will probably need cash at such a time and may wish to sell these shares quickly.
In these circumstances, the remaining shareholders will need sufficient capital to secure ongoing control of the business, without being forced to borrow the required sum to purchase these shares. The advantage of this assurance is that it can provide funds for this purpose at just the right time. This removes any worry that the deceased’s shares may have to be sold to someone outside the business.
Sole Trader Protection
Sole trading involves a lot of work where you could be in contact with the public, which increases your needs for a public liability insurance policy. While it is not a legal requirement to have a public liability policy, it is advisable to cover yourself against any liability claims, for instance injury to the public caused by your negligence. The cost of a public liability insurance policy for a sole trader is negligible when compared to the risk and cost of defending yourself against a public liability claim without any insurance. Liability claims are often for thousands and even millions of pounds which is obviously enough to bankrupt most businesses if they don’t have an insurance policy to cover themselves.
If you have even one employee then you must (by law) have an employers liability insurance policy in place, not having a policy in place if required is not only illegal but irresponsible since you are leaving your business open to large liability claims which could ultimately mean the end of your business. An employers liability insurance policy would usually cover you if an employee was to hold you liable for any injury they sustained while working under the direction of you. As you can imagine these claims for injury will often be for very large amounts of money.
Business Loan Protection
When a business takes out a loan, it needs to ensure that the repayments can be met no matter what happens to the business or its individual owners.
Business Loan Protection will ensure the business loan can be repaid in full upon death or diagnosis of a specified critical illness (where that option is selected) of the life insured.
If an overdraft, loan or commercial mortgage is unable to be repaid due to the loss of a key person, it can have huge implications for the business.
As its name suggests, Business Loan Protection is a type of insurance designed to repay all or part of a business’s debts upon death of the life insured. It is taken out to provide cover against death or a critical illness (where that option is chosen) that could adversely affect a business’s ability to repay its borrowings.
Several issues can arise if a business loses a key person such as a director:-- In addition to the operational issues faced by a business losing a key person, its future may be vulnerable if loan repayments can no longer be met due to a downturn in business.
- If a director or other key person provides a personal guarantee for the business loan, their family’s future could be adversely affected if the business were to default on payment as the key person’s estate could be drawn upon to help repay a loan if they were to die prematurely.
Business Loan Protection will ensure the business is protected against situations like these that could cause a business to struggle to carry on with its day-to-day operations and make debt repayments on time.
The loan protection policy provides the business with a lump sum to repay debt in the event of death or critical illness (where that option is selected) of the key person(s) covered.
Group Pension Plans
Some employers offer these schemes. They build up a personal fund for each employee which is converted into an income at retirement, but they differ from occupational defined contribution schemes. They are a type of money purchase pension.
The scheme is run by the pension provider that your employer chooses, but it is an individual contract between you and the provider. The provider claims tax relief at the basic rate and adds it to your fund. If you are a higher-rate taxpayer, you will need to claim the additional rebate through your tax return.
How does it work?
The pension fund builds up using your contributions and, where they are made, your employer’s contributions, investment returns and tax relief. It helps to think of money purchase pensions as having two stages:
The pension fund is usually invested in stocks and shares, along with other investments, with the aim of growing the fund over the years before you retire. You can usually choose from a range of funds to invest in. Remember though that the value of investments may go up or down.
