Business protection can help a business survive the financial turmoil in the event a shareholder or key person dies or becomes too ill to continue in the company.
It can help cover the loss of an individual, whether that’s ensuring remaining shareholders can retain control of their company by having the funds to buy shares from the estate of a deceased shareholder, as well as covering the loss of a key person and the potential financial loss of clients and business, or expenditure and recruitment costs.
Business protection can also help with financial relief, specifically covering the repayment of loans owed by the business that have been taken out by the deceased owner or employee.
These are core pillars of business protection fall into these categories:
- Shareholder protection insurance
- Keyman protection
- Business loan cover
- Relevant life cover
But business protection can also encompass a wide range of other insurance products that can safeguard your business’ finances.
They can include products like:
Why do you need business protection?
Business protection should be considered as an investment and financial safety net for your business’ future.
It can provide a cash sum to your company to help you survive the turmoil and disruption of losing a key figure in the company, as well as covering any financial commitments you find yourself in as a result of the loss.
Without business protection or insurance in place, you could quickly find your company in even more distress than you’re already in following the loss of a shareholder or key person.
Whether it’s relying on personal finances or business capital to fund the purchase of shares, lost recurring revenue if clients leave following the death of a key client manager, or the cost of recruitment of a senior director – these costs can be substantial and impact the stability of your company.
Business protection provides you with the capital you need to meet these obligations, without putting yours or your company’s finances at risk.
What types of business protection do you need?
As we’ve said, although business protection covers a range of insurance and financial products, it typically falls within four key pillars:
Shareholder protection insurance
Shareholder protection insurance provides a lump sum in the event a shareholder dies. The funds can be used to purchase any outgoing shares inherited by the deceased shareholder’s estate without relying on the business’ capital.
Shareholder protection insurance should be used alongside a shareholder agreement which dictates what happens to the shares once a shareholder dies.
You can read more about the benefits of shareholder protection in this guide.
Keyman insurance
Keyman insurance can provide financial support in the event a key person in your company passes away. The lump sum can be used to cover any immediate losses from key clients or accounts who leave as a result of losing their key contact.
Keyman insurance can also be used to fund any recruitment costs that come with trying to replace a key person, as these are usually senior people it can be expensive to replace them.
Typically you’ll be using keyman insurance to cover roles like Chief Financial Officer or Chief Executive Officer, but it can also be used to cover workers with key skills like engineers.
You can find out more about keyman insurance and the benefits of using it in this guide.
Loan protection insurance
If a shareholder or director dies and has business loans in their name, your business becomes liable to repay those loans in full.
If the loans are substantial, for equipment for example, this could put serious pressure on your business’ finances.
Business loan protection can help you repay outstanding borrowing and commercial mortgages too.
Relevant life cover
Relevant life cover works just the same as keyman insurance in that it provides a lump sum to a set of beneficiaries in the event the employee died.
However unlike key person insurance, it doesn’t have to be provided to the business and can be used as financial assistance for a key employee’s family, estate or other beneficiaries.
Cost of business protection
The cost of business protection will depend on a few factors.
1 – the value of the business.
2 – the personal circumstances and lifestyle factors of the employees or directors being covered by the protection insurance.
3 – the financial or perceived value a key employee brings to a company
The value of the company is typically judged on the profits or turnover over a period of time.
This is just an introduction to the costs of business protection and you can read more about it in these guides:
Invest in business protection with Rigby Financial
At Rigby Financial our expert brokers can help you find and invest in the best business protection for your company.
Whether you need shareholder protection, want to offer business incentives or protect your company’s investments and financial commitments, we can help you find the right level of cover on the market from all the top providers.
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