How to protect your business

What is business protection insurance and how does it work? Find out why it could be right for your business.

If you own or run a small business, protecting it is always a priority, especially if something were to happen to a key member, which could affect the financial health of the company. In this situation, business protection insurance could provide some peace of mind.

What is business protection?

Business protection provides coverage in the event that a director, business partner or other key employee of your business suffers a critical illness or long-term disability, or passes away. It’s a way of protecting the business and ensuring continuity. Business protection can help support forward planning in terms of succession and gives you ways to provide stability during what could be an uncertain time, especially if the company issmall.

What are the types of business protection?

Business protection insurance usually offers cover in three ways:

Key person protection

This protection provides cover to replace key staff and cover income lost by their absence that could affect the business.

It can cover any key employee from a head of department to the CEO.

Business loan protection

This protects the business by helping to repay business debts like a loan or bank overdraft if the owner or a key member (like a partner) dies or suffers a critical illness.

Shareholder protection

This cover is also known as ‘ownership’ or ‘partnership’ protection. It specifically covers the business owners if a shareholder dies, or suffers a critical illness, by ensuring that funds will be available to buy shares from the deceased shareholder’s estate.

These three forms of business protection also come with the option to add critical illness cover if you think it necessary. You could also get coverage for more than one person within the business. It’s always important to speak to an adviser who can help you figure out the the right type of business protection for your business and any extra coverage (like critical illness) your business and employees could benefit from.

What are cross-option agreements?*

Cross-option agreements are usually required with shareholder protection insurance. The agreement is set up with the directors or partners of thebusiness, and means that if one of these members dies, the remaining directors or partners have the option to buy back the shares from the deceased shareholder’s estate. It also gives representatives of the deceased’s estate the option to sell the shares to the remaining shareholders (which could be the preferred option for both sides).

*Before setting an agreement up legal advice should be sought.

What are the benefits of business protection?

One of the benefits of business protection is the knowledge that should anything happen to a crucial member of the business

• or someone with a financial commitment within the company
• there would be some protection It also gives other members of the business some peace of mind knowing this.

Business protection can protect any loans or mortgages tied to your business, too, meaning lenders (knowing that you have business loan protection in place) are less likely to refuse a future loan, and will not approach the guarantor of a loan or their estate to recoup any existing loans.

In a small business that relies on a few key employees, the risk to the business from a financial point of view might increase if one of the team were unable to contribute because they die or are critically ill. In that situation, business protection is a wise plan to have in place.

An adviser can help you find out which type of business protection plan works for you and your company.