Shareholder protection is a form of insurance which protects the company and company shareholders against the critical illness or death of an owner or shareholder in the company.
Should a business owner or shareholder suffer either death or diagnosed with a terminal or a specified critical illness, shareholder protection can provide a lump sum to the other partners within the business. This lump sum could be used towards the costs of purchasing the deceased partners/shareholding directors/members interest in the business.
Without shareholder protection in place, businesses run the very real risk of the director interest being passed to the deceased’s estate on death. Should the business not have the capital to purchase the shares, the surviving business owners could lose control of a proportion, if not all the business. The beneficiaries may then choose to have direct involvement with the running of the business, or sell their stake to a third party. Shareholder protection is designed to mitigate this risk.
Key Man Insurance
Do you have a key member of staff that, in their absence there would be a significant impact on the ongoing running and profitability of the business?
The loss of such an important member of the team could lead to unexpected consequences such as reduced sales, a loss of turnover and profits, increased work loads, interruption of growth plans and recruitment costs.
Mitigating against the loss of a Key Man to either death or Critical Illness can be achieved with a Key Man policy. The policy is owned by the business but taken out on the “life of another”. The proceeds of the policy are intended to assist the business financially with the implementation of it’s Business Continuity plan.
A Relevant Life Policy is like a ‘death in service’ benefit but is taken out on an individual basis rather than company wide. It is designed to pay a lump sum to the person insureds estate if they became terminally ill or were to die whilst the policy is in place.
Relevant Life cover is similar to Life Insurance used on a personal basis, however it can be a useful tax efficient alternative. These benefits are derived from the business paying the premium on behalf of the employee. Although the policy benefits the insured personally it is an allowable business expense.
Business Loan Protection
Many businesses take out loans to start up a company or to facilitate their plans for growth. The company’s ability to repay the loan will often rest with a few key people. Businesses need to ensure they have the appropriate mechanisms in place to pay an outstanding loan if something happens to those people.
Most types of business loan can be protected, including:
- Commercial loans and mortgages;
- Venture capital loans;
- Directors’ loans; and
- Personal guarantees.
In the eventuality of death, terminal illness or a critical illness a Business Loan policy, much like a mortgage protection policy can be used to repay these types of commitments.