At a fundamental level business protection provides a benefit payment to help the organisation continue to trade should a key person or business owner die or become critically ill.

If a key person or business owner suffers a serious illness or passes away, the insurer’s payout can ensure corporate debt is protected, the cost of replacing the key individual is covered, or can even provide the capital to allow the surviving business owners to purchase the deceased’s share of the company.

Why should you protect your business?

The vast majority of small businesses are dependent upon a handful of key individuals and the loss of one of these people can often mean the beginning of the end for the business. A key person can include business owners, sales directors or any other employee with specialist skills or knowledge.

When it comes to evaluating the loss of such an individual the cost to the business will more often than not reach beyond the costs of recruiting and training a replacement, including:

  • Loss of profits;
  • Loss of important personal or business contacts;
  • Loss of detailed knowledge of the organisation’s systems and processes; 
  • Loss of confidence from suppliers and customers.
Types of business protection

There are three core types of business protection covering key personnel, business owners and the protection of corporate debt.

Key Person Insurance is fundamentally a very simple protection product designed to safeguard a business against the financial effects of a key person suffering a critical illness or death.

The life insurance and critical illness cover is written on the life of the key person but owned by the business. Should the key individual suffer a serious illness or pass away the benefit payment to the business would provide the necessary cash injection to help them through such difficult times.

For further information the Drewberry Insurance guide to Keyman Insurance is a useful resource.

Shareholder Protection is designed to provide a safety net to deal with the loss of a company shareholder. If a business partner dies without making specific provisions for their share of the business what would happen? Would there be sufficient funds available for the remaining shareholders to buy the shareholding and remain in complete control of the business?

When structured correctly with a cross option agreement should a business owner die or become seriously ill such protection ensures the surviving business partners have both the funds and the option available to buy the deceased’s shares. The same option agreement provides the deceased’s beneficiaries with the option to sell the shareholding to the remaining partners, who would have the necessary funds available. Without these provisions in place the beneficiaries would either have to take over the deceased’s position as partner or realise the value of the shareholding by selling it to another interested party, neither option is problem-free.

For further information visit the Drewberry Insurance guide to Shareholder Protection.

Business Loan Protection ensures the business can pay an outstanding overdraft, loan or commercial mortgage, should the guarantor die or become terminally or critically ill.

Business Loan Protectionis either set-up as a life insurance only or a life insurance with critical illness policy, which is paid for by the business and written on the life of an individual or individuals. Should such an event occur and a valid claim is made, the sum assured (equal to the outstanding debt) could be paid to either the business or directly to the lender.

Key Considerations

For any company where its future is dependent upon a handful of key personnel, business protection should be a fundamental requirement. As with any financial product it is important to consult an expert and this is especially important when it comes to business protection to ensure the policy structure, cross option agreements and business trusts are all set-up correctly.

For further information and to learn more about the process of implementing these policies visit the Drewberry Insurance guide to Business Protection Insurance.