Most business owners have insurance against things such as theft, equipment damage, and fire. But have you thought about how your business would cope if a key employee died or became seriously ill?
Your people are your most valuable asset, yet research by Royal London indicates that just 22% of small businesses have protection for their owners and staff. People can break down just as easily as equipment does – and the impact can be far more severe.
If an employee who is integral to the success of your company died, you could struggle to keep trading. If a shareholder died or became ill, you could lose control of your business.
It’s vital to protect your business from unexpected events. Here are four types of business protection to consider.
1. Protect valuable employees with Key Person Cover
Key Person Cover protects against loss of profits resulting from the death or critical illness of a key employee. This could be someone whose skills or experience directly affect your business’ financial success.
The loss of a key person could affect your company in several ways. Customers and suppliers could lose confidence, banks might call in loans, and penalties could arise from late delivery of goods and services.
The lump sum paid out by Key Person Cover could help you keep trading while you recruit a replacement.
Research by Legal & General suggests 52% of SMEs would cease trading within a year if a key person died or became ill. This shows the importance of having this type of business protection in place.
2. Keep control of your business with Shareholder Protection
If a shareholder dies or becomes ill, Shareholder Protection helps the other shareholders buy their interest. This helps minimise business disruption and ensures you stay in control of your company.
Without it, part of your firm could pass to someone who has no interest in it. Worse still, they could sell their shares to a rival business.
Businesses often lack the spare cash to buy an outgoing shareholder’s stake. You could struggle to raise capital at short notice and resort to selling assets to pay off the deceased’s estate.
By taking out Shareholder Protection, you’ll increase your chances of a smooth business succession.
3. Pay off loans with Business Loan Protection
If you took out loans to grow your company, you may wish to consider Business Loan Protection.
This can help pay off debts following the death or critical illness of an owner, partner, or director.
Lenders sometimes have the right to demand that outstanding loans are repaid if a key employee dies. Your business could struggle to repay such loans at short notice and may have to resort to selling assets. Worse, it could be forced into administration.
If you acted as guarantor for the loan, your personal assets—including your home—could be at risk.
Business Loan Protection can provide you with the peace of mind that your company’s debts will be settled if the worst happens.
4. Protect your employees’ families with Relevant Life Cover
Relevant Life Cover is a type of life insurance taken out by small businesses on behalf of their employees. If an employee dies during the policy term, their financial dependants will receive a tax-free lump sum.
As well as providing a valuable benefit for your employees, Relevant Life Cover is tax-efficient since the premiums can be treated as a business expense and reduce your Corporation Tax bill.
As a business owner, you can pay for your own life cover with business proceeds instead of personal income.
Business protection provides peace of mind
It’s easy to overlook business continuity when you’re launching and growing your own company. Business protection can provide peace of mind that your business won’t financially suffer if the worst happens.
At Capital, we can help you protect your business from the unexpected. Please contact us at firstname.lastname@example.org for more information.