Is your business adequately protected?

I am sure that many business owners protect their tangible assets such as their home with buildings and contents cover, and for their business, the buildings, machinery and vehicles will all be insured. But they may have partners, shareholders, or other key people with skills that are vital to the success of your business that they do NOT insure.

If they, or one of their key staff died, or was diagnosed with a critical illness, the financial impact on the business could be serious. That’s why planning to help protect the business from the financial consequences of losing its key people is vital.

What impacts could their death have on the business? Reduced sales or turnover? Difficulty in recruiting or training a replacement? Could the business afford to repay its creditors and keep trading? Could the business survive in what, for many businesses, is the harshest trading environment for many years?

Also just for a moment, consider what will happen to a business if a director, who is also a shareholder in the business, dies or is diagnosed with a critical illness?

• The business loses their experience and expertise
• What happens to their shares?
• Can the business or the remaining shareholders afford to buy their shares?
• Their shares might pass to someone who has no knowledge or interest in the business or that person might gain significant control over the direction of the company and make decisions which might not be in the best interests of the remaining directors or those still working for the company.

This is an area that is becoming very topical, and therefore if you, or any of your contacts believe that this is something they should review then please do pass on our details, email me on shane@kirkellainvestments.co.uk or give me a call on 01482 658989 to discuss in more depth.

Shane Beardsley
Managing Director / Independent Financial Adviser

One question I keep getting asked is “What actually is Key Person Insurance?” otherwise incorrectly (not politically correct of course) referred to as Key Man Insurance.

Key person insurance is a life insurance policy that is taken out by a company on one of their employees, usually one of significant importance, where the death or incapacity of said individual can put the company at financial risk.

Key person insurance in the UK is relatively new, well, not new, it has just become more widespread in recent years. I recently heard that less than 5% of companies in the UK actually have any, but it is more like 25% in the USA.

In its simplest terms a “Life insurance” is contract by which a pre-agreed amount of money is paid to a selected beneficiary in the event that the life assured, or person covered, dies.

The “Key Person” in question depends on the type of company and what exactly they do, for example, in a sales based company, where the top sales person accounts for 50% of the total sales, could be deemed to be KEY to the success of the company. For some businesses, the entire sales team may be considered difficult to replace, especially if it is a specialist product. It may even relate to the contacts and connections associated with a particular employee.

Most lenders, especially in the current economic climate will require a business to effect Key Person cover on people they deem to be important in the decision as to whether they actually loan the company the money, and if that persons death would risk the repayment of that loan.

The proceeds of a “Key Person” Insurance may be used for a multitude of different reasons, they may be used:

i. To buy back shares in the company from a deceased partner / Directors beneficiaries.
ii. Pay back a business loan.
iii. Pay to train and source a replacement.
iv. To cover lost cashflow.

There are many reasons why a company would need or want Key Person / Key Man Insurance, and it is important that they understand the reasons and what their needs are.

If you think your business would benefit from a review, then please do not hesitate to contact us on 01482 658989 for a review on this or any other area.

Shane Beardsley
Managing Director / Independent Financial Adviser

I will be posting quite a lot on this subject over the coming weeks; as a business we have seen recent examples where the lack of this type of cover has brought companies to the brink of failure, and all due to events completely out of their control.

As business people, we often spend hours and hours in meetings discussing strategies and business progression, but one aspect often overlooked by company directors isnt the insurance on their cars, or public liability, but on the people themselves.

I read an article recently that suggested that less than 5% of companies in this country have any form of Key Person Insurance (previously referred to as Key Man Insurance) versus 25% in the USA.

If this causes you concern, or you think a review of your companies position would be beneficial, then please contact us on 01482 658989.

Shane Beardsley
Managing Director / Independent Financial Adviser

We regularly talk to Companies, Company Directors and Partnerships about their Protection Plans, and by the term Protection we mean:

• Key Person Protection
• Shareholder Protection
• Partnership Protection

It is true that most respectable people and companies will insure their premises and cars, amongst other things, but haven’t insured themselves!

A company should seriously consider covering major shareholders, Key Staff, Directors or Partners for a multitude of reasons.  For example, ask yourself:

• Would your company be able to afford to finance and/or train replacement key staff should any of them die or become critically ill.
• Would your spouse or partner want to inherit shares in a company he or she may know nothing about,
• or would the remaining Directors want a significant portion of their company to fall into the hands of someone they may not have chosen to work with.

If the answer to any of these is NO, then you need to talk to one of our Advisers ASAP.

If you want to discuss this or any other matter please do not hesitate to contact us for a financial review.

Shane

Often overlooked, frequently misunderstood, and always needed a little too late.  As business owners we are often faced with challenges that test our abilities, but rarely are challenges thrust upon us that truly jeopardise the very future of our business without us having done ANYTHING wrong.

Should a KEY PERSON within your business die or become critically ill, it is very possible that it could actually spell the end of a business.  With careful planning, and often very little cost, it is possible to safeguard a business from the financial hardship associated with the loss of a key employee.

Over the coming weeks and months I am going to be posting examples, case studies and simple solutions that are readily available to you and your business.

Watch this space…. but in the meantime if you require advice on this or any other matter please do not hesitate to contact us.  

Shane.