Protecting your core assets is standard practice when running a business. Indeed, most small and medium-sized enterprises (SMEs) carry insurance to protect their physical property, equipment, and stock against unexpected events.
However, you may be overlooking one of the most valuable resources driving your growth: your people.
Failing to protect your business against the unexpected loss of key individuals can have significant financial consequences. Research published by
Losing a founder, director, or specialist team member because of death or critical illness can pose a sudden threat to the stability of your operation.
Fortunately, setting up business protection can mitigate these risks and help keep your financial ambitions on track.
Key person insurance safeguards revenue and talent
A key person is anyone whose knowledge, skills, or client relationships directly generate a profit or drive business operations.
Key person insurance works similarly to life insurance or critical illness cover, but the policy is owned by the business, rather than the individual.
If a designated employee passes away or becomes critically ill, then the policy will pay out a tax-free lump sum directly to the business. This could provide a crucial safety net while you restructure or find a replacement for that key person.
Having key person cover in place offers two major financial benefits.
- Replaces lost revenue: The unexpected loss of a top salesperson, managing director, or technical expert could cause sales to drop or major projects to stall. An insurance payout can help offset any lost earnings and clear outstanding business debts while you adapt your operations.
- Covers recruitment and training costs: According to research on employee turnover costs from BrightHR, it could take you up to 28 weeks and £25,182 in lost productivity to replace a standard employee. A key person may bring even more to the business and thus cost more to replace.
A key person payout provides important capital at a vulnerable time, ensuring your business continues to operate and can attract and train top talent without unnecessarily draining cash reserves.
Shareholder protection can help secure business ownership
In addition to protecting key employees, consider what could happen if a business owner or shareholder passed away.
Remember, the equity of a deceased shareholder typically passes to their family or estate, who may have no interest or experience in running a business. Despite this, they will be the legal owners of that equity and could influence business operations.
If the remaining shareholders wished to retain control of the company, they would need liquid cash to buy back the inherited shares.
Shareholder protection aims to solve this challenge.
Here, if a shareholder dies, the insurance will pay out a lump sum to the surviving members. This could provide sufficient funds to buy the shares back. The family then also receives a fair financial payout without the need to become involved in company management.
Without this protection, a sudden death can cause severe disruption in the business and even lead to the original owners losing control of their company.
Do not neglect personal protection for your family
While protecting company revenue and capital is essential for the continuity of your business, it is important that you also consider personal protection.
After all, the success of your business ultimately supports your personal stability.
While key person insurance or shareholder protection helps maintain this stability for the business, personal life insurance and income protection mean your family remains financially secure.
Together we can structure your personal policies alongside your business arrangements, ensuring both are protected against unexpected shocks.
Get in touch
Assessing your corporate risk profile and putting the right policies in place is key to protecting your long-term financial aims.
At DBL Asset Management, we work alongside business owners to design bespoke protection plans to safeguard your hard-earned revenue and protect your family wealth.
To talk more about how we can support your business protection needs, get in touch at enquiries@dbl-am.com or call 01625 529499 to speak to us today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Note that life insurance and financial protection plans typically have no cash-in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
The Financial Conduct Authority does not regulate estate planning.