We know that this is a very difficult subject, but we have to ask: Have you ever considered how your business would cope if a key member of your team were to die?
Since the Coronavirus crisis began, and especially since the lockdown was declared by the Prime Minister on 23 March, we have all become used to new ways of living and working. Many of us will know someone who has had the disease; some of us will know someone who sadly lost the battle to survive. Whatever our personal experience, the pandemic will inevitably have given us much cause to reflect on our own frailties and mortality.
Without wishing to minimise the impact of the disease on individuals and their families, the pandemic has also given us the opportunity to review how our businesses are protected from worst-case scenarios, such as the death or critical illness of a director or partner.
Although businesses spend a lot of time and money insuring their property, machinery and equipment and on a range of benefits for their staff, far fewer consider the impact of the loss of a key person or business owner on the business itself. Yet in its ‘State of the nation’ report into Business Protection published in 2019, a major business protection provider found that 52% of businesses said they would cease trading in under a year if a key person died or became critically ill.
So, what can you do to protect your business against this kind of risk?
Key Person Protection
You can take out an insurance policy (with or without critical illness cover) to protect your 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 research cited 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).
We hope that the pandemic passes before too long and that your business manages to survive and thrive well into the future. However, we are all mortal and sometimes the worst can happen. Whether that’s due to a novel virus or more common life-threatening illness such as a cancer, stroke or heart disease, and without minimising the personal cost to you and your family, the importance of mitigating the risk by taking out business protection should not be overlooked.
Brunsdon Financial can help you to find the right policy for your business, or to review your existing provision. It can be a complicated area, so please do seek advice from your Consultant.
Source: ‘Business Protection: State of the Nation’s SMEs report’, 6 th edition, published by Legal and General, October 2019.