Whether you have over 200 employees or as few as 1, running a business involves risk.
Business protection is used to mitigate these risks, particularly by supporting a business through financial difficulty or loss.
Causes of the above might include:
As financial advisers in Lincoln, we work regularly with business owners to arrange adequate protection for their companies.
It helps to know a bit about business protection before you dive in. This brief guide on the subject should help you better grasp what’s involved, and what course of action might be most appropriate for you.
First, let’s unpack business protection a bit more, before considering some practical solutions.
Business protection is essentially insurance. It provides financial cover for businesses in the event of the death of key business employees, directors or partners.
Different types of insurance exist for various kinds of business, including:
The nature and structure of your business will affect which type of business protection is most suitable for your needs.
As financial advisers in Lincoln, we often tell clients that it usually helps to understand life insurance, in order to better grasp business protection insurance.
Life insurance is a fixed-term policy, paying out a sum if the individual covered by the insurance dies within the term. The premium you pay for the policy depends on many factors, including:
Naturally, the older and more unhealthy you are, the higher your premium is likely to be.
Business protection and personal life insurance can both pay out to one person, or to multiple people. So the two can look quite similar.
Where the former differs, however, is that it offers three distinct types of business protection:
The latter two can also provide critical illness cover as an option. This allows a payout to be made if a specified person is diagnosed with a specified illness covered under the policy (e.g. heart attack, stroke or cancer).
The answer to this depends on your type of business, your goals and needs, and the specific set of circumstances your business finds itself in.
The best course of action is to seek professional, qualified advice from a financial adviser who is experienced in business protection.
In the meantime, here are some points to get you started:
#1 List your key people
It might well be that there are just 1 or 2 people who you regard as critical to the ongoing functioning of the business. Or there may be more.
Regardless, it is crucial that you make a note of your key people, and detail what the consequences would be for your business if any of them were taken out of action.
#2 List your shareholders
If you are a limited company, how are the shares allocated, exactly?
Which people hold the biggest slices of the pie? Are any of these individuals ‘key people’?
Consider the hole that would be created if a significant shareholder were to die. Would the remaining owners be able to buy this person’s interest in the business?
#3 Survey your assets & liabilities
What reserves does the business have? Could any of these be put to good use in the event of a shareholder / key person loss?
Also, consider your outstanding business debts. What provisions are in place to settle venture capital loans, commercial mortgages and directors’ loans in the event of owner death?
Castlegate Financial Management Limited is registered in England No. 2077374. Registered Office: 8 Castlegate, Grantham, Lincolnshire. NG31 6SE. Authorised and Regulated by the Financial Conduct Authority. FCA No. 169777.
