Bob is a builder, Eric is an electrician and Paul is a plumber.
They do all the necessary work themselves and when the property is complete, they put it on the rental market.
The value of the property has increased, so they mortgage it and using those funds, they return to the property auctions to find their second property.
Their plan is to carry on doing this and build up their property empire.
Opportunities for Protection conversations?
What are the immediate protection opportunities up for discussion?
Control - Each partner will have a shareholding in the business to the value of how much they invested, so there is a question of how they keep control of their business if one of them dies or gets sick.
How would the surviving business owners feel if someone came into the business that they did not want to work with, because they had inherited their deceased business partner’s shares?
What if this new person has no useful skills but wants a say in how the business is being run?
Would the surviving business partners like to have control of their own destiny?
The answer to fix this problem is simple business protection.
This could be life insurance or critical illness cover, which would provide the necessary funds to allow the remaining shareholders the ability to purchase the shares of the other shareholder who might have died or been diagnosed with a critical illness.
Part of this solution would include a legal agreement which is designed to protect both parties – the business but also the family of the deceased or sick director.
Key people? – A scenario like this also suggests that all three business owners are key people.
If they perform duties which are essential to the running of the business, then sickness or death of one of them could affect profitability.
The answer to this problem is simple protection cover for each key person.
This could be life cover, critical illness cover or income protection; all of which are designed to allow the business the funds to protect their profits and perhaps bring someone into the business to perform the duties of their sick or deceased business partner.
Debts? - Another problem is those mortgages.
Simple loan protection in the shape of life cover or critical illness cover could be used to repay part or all of those debts – just like normal mortgage protection.
I also mentioned the initial funds that each partner put into the business when they set it up.
Each of those £50,000 deposits which were used to buy the first property are directors’ loans to the business.
