Business Insurance

Small and medium-sized businesses make up the backbone of the UK economy. They vary considerably in size, some having as many as 250 employees, others as few as one. Running a business can be very rewarding, but it is a massive responsibility and comes with its own risks. Whether you’ve been in charge of a business for many years, or have only just started up your own company, it is super important to understand all of the financial risks involved and more importantly how to protect against them and in turn minimize their impact.

There are many different types of business structures and they are all governed by different rules which determine the legal status of the business and how it is run, for example, the amount of tax you pay, who is entitled to the profits, who is liable for any debts run up by the business and, in a partnership or limited liability company, who gets what if one of the partners dies or takes seriously ill and is unable to carry out their role in the business.

Hope for the best but plan for the worst – this is the key to success and sustainability. The most common mistake business owners make is that they believe that they are ‘invincible’ and that nothing will ever go wrong and as much as it is a great attitude to have, it is unrealistic in the real world of running a successful long term business.

If you are already running a business, then you should already have some form of commercial insurance in place such as public liability, professional indemnity, business premises and/or contents insurance. Most business owners always have these types of cover in place because they are essential to have when their businesses start up and in most cases these types of insurances are mandatory, however, these same business owners are far less likely to insure the health, or the lives, of the key people who keep their business running day to day. For example, if your business partner suddenly died, would the business have enough money to buy back the shares from their next of kin? Would the business be able to pay back any loans that have been underwritten by that person? Or if you became critically ill, would there be enough funds to pay a replacement person to ensure the business is still performing while you recover? The honest truth is that such events would most often prove catastrophic. Business protection insurance can help lessen the financial impact of such events in a number of ways which include :-

• The repayment of business debts
• Provision of funds to find and recruit specialist staff
• Purchasing of shares from a deceased business partner or director’s estate

Statistics show that if a key person died or became critically ill then four out of ten businesses would cease trading within less than 1 year.

For business protection, as with personal protection, it is possible to have more than one life insured. In most cases, the cash sum paid out would go to the business or remaining business partners. There are three different types of business protection insurance :-

• Shareholder Protection
• Key Person Protection
• Business Loan Protection

If a business loses an an owner or a partner this will most likely cause major problems, but many people overlook the effect such a loss would have on the business. When an owner or partner dies, their stake in the business would pass directly to their spouse or child. If he or she was a majority shareholder, this would mean that the remaining owners would lose control of some or all of the business, and subsequently have to work with the spouse or child of that former owner.
If the spouse or child does not want to actively work in the business then they would want to sell their shares back to the business, but if the owners cannot find the money to buy this shareholding then it would most likely be sold to a competitor which comes with its obvious problems. The ideal situation is for the owners to buy back the shares, paying the spouse or child a cash lump sum which would ensure that they retain control of the business, but would they have the money to do so? This is where Shareholder Protection insurance would help. Shareholder Protection insurance provides a pay-out to enable the owners to buy back the shares from the spouse or child.

When it comes to Key Person Protection many businesses don’t insure key people who are vital to current and future success of the business. This would leave the business vulnerable should a vital employee die or had to take a significant amount of time off work due to suffering a critical illness. For example, if one of your top sales people became seriously ill, and had to take 18 months to 2 years off-work, how much would this lose the business in terms of revenue generated by that sales person? Much the same if an owner or partner had the same thing happen to them, would you be able to grow and expand the business as you had planned? It is always worth identifying those key people who are essential to the success of your business and if you believe their loss would have a significant financial impact, then it would definitely be worth looking at Key Person Protection.

With Business Loan Protection, owners, partners or directors can insure any outstanding debt, and in the event of death or critical illness this will be repaid. If your business fails, due to the death of the owner, or a partner, and there is not sufficient money and/or assets to cover the debts, then a lender would seek repayment from the guarantor, or their estate. This would in turn mean that your personal assets, including your home would be at risk. Similarly, if a Directors’ Loan account is not insured, and the director dies, the business may have to sell assets at short notice to repay the loan. If it is unable to do this, the business could be forced into administration, leaving the director’s family out of pocket.

So far we have focused on how life insurance and critical illness cover can help protect your business, however, this is usually a two-way process and businesses should also provide a financial safety net for directors and employees which provide their families with the same insurance benefits. With a Relevant Life Plan it is the family that is protected not the business. It is a type of life insurance that an employer can provide for their staff and it is one of the cheapest insurances available but can be largely rewarding and provide a major sense of security for your employees and their families. The policy is paid for by the business owner and the pay-out goes directly to the employee’s family. In large corporations this is known as Death in Service cover. For owners and directors of businesses, a Relevant Life Plan is a tax efficient way to purchase life insurance, because this kind of cover is a tax-deductible business expense that can be offset against corporate tax so essentially you pay 19% less for the policy, but then the tax savings can be even greater depending on the rate of income tax you pay based on your salary and dividends.

At The Insurance Helpline we can advise and arrange all types of business protection insurance as well as commercial insurance for premises / contents and public liability and professional indemnity insurance – so please get in touch and we will arrange an appointment to visit you and assess all of your business insurance needs.