Protection  

How to help clients protect their businesses

This article is part of
Guide to financial resilience and protection

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What kind of insurance could be put in place so other directors can buy out their share, for example, or cover liabilities in the short term?

1. Key person cover. Key person cover protects a business against loss of profits following the death or serious illness of one of its key people, whether the business owner, senior director, finance director, sales and marketing or anyone with specialist skills and knowledge.

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Depending on the policy, it can also provide funds to help the company source a replacement. 

2. Loan protection. Loan protection cover provides a business with the funds to repay commercial lending, or a director's or partner's loan to the business.

Beynon explains: "Some commercial lenders insist that life and/or CIC is put in place, or personal guarantees are signed before releasing the funds, so this product can indirectly protect personal assets." 

3. Shareholder protection. This sort of arrangement provides funds for other shareholders, such as fellow directors, to buy the deceased's shares from the family. Unless there is an expressed wish for the shares and the responsibility to be passed onto the next generation to keep the firm in the family, it is important that the business is able to continue and flourish with strong management.

Otherwise, the surviving shareholders could lose control of the business, and the deceased's family could be left with an unwanted shareholding and no obvious buyer.

According to Beynon: "Similarly, if a shareholder suffers a critical illness and wishes to leave the business, the arrangement aims to provide funds for the other shareholders to buy that person's shares."

4. Executive income protection. This, according to Sage Wealth Management, is a type of protection for limited companies where the business owns and pays into the account. If an employee becomes ill and is no longer able to work, the company may then pay out.

5. Group IP. LifeSearch's Richardson explains: "With GIP it is also possible to continue paying that key person. That does not mean just paying 70 per cent of their salary and continuing with national insurance and pension contributions. It also includes occupational therapy and emotional support to help the individual get back to work sooner.

6. Relevant life cover: For RLC (single life death-in-service) products can also help advisers to offer employer-sponsored cover, which means that as well as protecting the business, employees can also look after their staff.

For Setul Mehta, head of business development and adviser services at The Openwork Partnership, one of the first questions a business owner needs to ask themselves is: What is a key person?

Mehta says: "A key person for me is anyone whose loss would affect the business's ability to maintain turnover or generate profits – or even just continue to run."