Business Protection Business Protection
Key Person Protection
All businesses have people who are key to the smooth running and profitability to the company. Ask yourself “if you had to close the business and open up again round the corner, who would you take with you?” Those people are key persons! If they were to pass away or become seriously ill then important work needs to be picked up by someone else. Who is going to do it? Will you need to pay overtime, find a replacement, pay a recruiter, have training costs, pay over the odds to entice someone to leave their existing job? You might need a cash lump sum to fill a void in profits that would be left because of reduced sales activity whilst the business copes with the loss of this key individual. Without this support, many businesses cannot keep their heads above water and may fail. This could result in the livelihoods of all involved being impacted.
When a shareholder dies or becomes critically ill it can lead to some very difficult decisions. If these situations are not considered in advance, the business may falter or fail whilst the owners battle over how to move forward and who has control. In the event of a shareholder’s death, their shares pass to their beneficiary(ies). Often that will be their spouse. Does their spouse want shares? Probably not! They would likely want fair value for them but not be having to join the boardroom. The remaining owners of the business almost certainly don’t want the spouse of their deceased colleague as a co-owner in the boardroom influencing the future direction. Trouble is, do they have the funds to buy the shares back? Probably not!
Share Protection steps in and provides the funds for the remaining owners to buy the shares from the spouse of the deceased, Fair value is agreed in advance, so everyone gets what they need. Owners get control of their business, whilst the deceased owners family receive fair value for the shares. Like so many things, with a bit of planning ahead, the road is a lot less bumpy!
Relevant Life Plans
Businesses can provide a death in service lump sum for their employees via Relevant Life Plans. These are set up as either a fixed lump sum or based on a multiple of the employees’ total remuneration at the outset. The business can pay for the plans out of company profits making them highly tax-efficient and there is no benefit in kind tax liability on the employee. These can therefore be a powerful employee retention tool especially as many plans will come with important added value benefits such as access to a private GP service 24/7. Most employees would welcome that a s a benefit provided by their employer, and it could even reduce absenteeism at the same time!
Just as an individual might ensure their mortgage can be repaid if they were to pass away such that they avoid burdening their loved ones with a mortgage liability, so a business can take protection to ensure loans don’t become a burden on a business that is battling to cope with the loss of one of its key people. This cover can be taken in the event of death or critical illness, leaving the business able to move forward without the pressure of continuing to repay the debt.
Executive Income Protection
If an employee is unwell, most employers would want to be able to pay their staff, but there might be a limited time the business can afford to pay them. If the business takes out an income protection policy, then the business will receive a regular income to allow it to manage the payroll costs of providing sick pay. The premiums of the policy are likely much more palatable than continuing to pay a salary long term. The employer’s national insurance contributions and pension contributions can also be protected meaning they don’t become a burden. The business can afford to go out and pay a temporary replacement meaning it can continue to operate and the employee is looked after during their period of incapacity.