Business is a team sport: you usually just cannot do this alone. And that’s why protecting the key people in your business is one of the most effective ways to protect your business’s future.
With this in mind, both key person insurance and shareholder protection insurance are designed to shield your business from the risk of financial loss, but they do so from two different angles. Here’s a handy summary of how each works, to get you started.
Who are your ‘key people’?
As the name suggests, key person insurance is designed to ensure business continuity if you were to lose a key team member, due to a serious illness or accident. Basically, it’s an insurance policy that your business takes out on its most valuable employee(s).
So, think about the people that make your business thrive: who would be difficult to replace? It could be an owner, a director, a sales manager, a marketing manager – anyone whose sudden absence could disrupt your operations.
Once you’ve identified them, key person insurance can form an important part of your contingency plan. Essentially, it would pay for the cost of replacing that key member, either as monthly payments or as a lump sum.
Like to choose the right key person insurance for your business’s needs, but you’re not quite sure where to start? Get in touch: we can help you investigate the options available and put a solution in place to keep your business on solid ground.
Do you have multiple shareholders?
If you have multiple shareholders, directors or partners, shareholder protection insurance may also be worth considering. Designed for companies run by multiple owners, this type of cover can provide a financial safety net if you lose a shareholder due to death or serious illness.
Why is this so important? Typically, when a business partner dies or experiences a serious illness, the remaining shareholders are faced with some tough decisions. For example, the deceased/disabled shareholder’s family or beneficiaries may join the business, and they may have no interest in it or even decide to sell to an outside party.
Could you afford to buy-out their shares at short notice? And if not, would you have to sell the business on the open market or – worse – to a competitor?
Shareholder protection insurance can help you avoid the risk of financial instability and conflicts over ownership, ensuring that your business continues to run as smoothly as possible. Usually, the policy is set up to provide the remaining shareholders with enough funds to buy out the shares of the deceased shareholder.
In a nutshell, it’s a form of ‘business succession planning’. And what’s more, you can include critical illness cover as an optional add-on – this way, your cover will also step in if a shareholder becomes seriously ill.
Like to learn more?
A sound business continuity plan can go a long way in keeping your operations ticking over. And depending on the size and characteristics of your business, key person cover and shareholder protection insurance are worth considering.
Like to learn more? Please don’t hesitate to get in touch. We can help you identify and address your most likely risks.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.