Business assurance - what you need to know

Every business is faced with its own specific risks. To generate profits risks needs to be taken. The key is to avoid those risks that do not provide adequate compensation for the risk taken. One risk that almost all businesses face and which if not well managed could be detrimental to its success, is the risk of losing key personnel or shareholders, due to death, disability or severe illness.

Business assurance is a risk reduction tool that mitigates these risks by ensuring that sufficient provision has been made for your business to manage such risks proactively. Business assurance provides certainty, financial liquidity and is instrumental in any succession planning process ensuring continuity of the business.

BUSINESS ASSURANCE – SOLUTIONS AVAILABLE

As a business owner, it is prudent to consider the benefits which business assurance solutions offer in terms of risk management, succession planning and the overall stability of the business for the employees. The most common business assurance solutions are:

Buy & Sell insurance - In a business entity where there is more than one owner or shareholder, Buy & Sell Insurance is essential for sustainable continuity. This type of insurance not only protects the business on the death or disability of an owner but the estate and dependants of that owner. Common questions when considering the need of buy & sell insurance include:

• Will my family be able to draw a sufficient income from the business, following my death?
• Does my surviving spouse have the skills, knowledge, and willingness to replace me in the business?
• Do any of my heirs have an interest in becoming involved in the business?
• How can the value of my shareholding be unlocked for my family, in the event of my death?
• Will my remaining business partners be able to afford and have the liquidity to purchase my interest?
• Will the efforts of a lifetime be lost to my family if there is no buy & sell insurance in place?

Key Individual insurance - Every business has one or more persons upon whom it may heavily depend upon for its future success, based on a specific skill set or relationship with customers or suppliers who are critical to the business. The premature death or disability of such a key person can result in a severe financial loss to a business. The purpose of Key Individual insurance is to compensate the business for the loss that it would sustain, providing liquidity for the recruitment, replacement, and training of a new key person.

Common questions when considering the need for key individual insurance include:

• If the business relies on a particular person as a rainmaker, whose death would have a negative impact on the business?
• Would the death of the rainmaker have a negative effect on turnover and does the business have sufficient liquidity to cover such an event?
• Would financing terms be less favourable until such time as a new rainmaker is in place?
• Would there be a delay in finding a successor or rebuilding relationships, in the event of the death of a rainmaker?

Contingent Liability insurance - A policy can be implemented by a company on the life of an executive director to cover an overdraft or loan facility. The untimely death of one or more directors could materially impair the company’s credit facilities. To secure the company’s loan capital and maintain favourable credit rates, it may become necessary for a policy to be effected on the life of a key woking director. Common examples include:

• Covering a personal guarantee
• Covering a shareholder’s loan account
• Covering a mortgage bond
• Providing a sinking fund or cash reserve

IN CONCLUSION

Every business is unique in nature and the most suitable business assurance solution would, therefore, vary according to the needs of each business.

We can assist you with the implementation of a suitable business assurance solution, highlighting the following aspects:

The appropriate risk cover provider – The business assurance market is a competitive space in terms of insurers available for consideration. During the consultation process, our objective is to assist in selecting the best and most reputable product provider to meet specific requirements.

Premium growth pattern type – There are various growth patterns available such as level, fixed escalation or age rated. Advice will be provided in highlighting the differences between the various types, ensuring an informed decision can be made to select the most suitable option.

Cover amount – Being underinsured is a risk in itself. Ensuring that you are adequately covered and that cover amounts are reviewed annually, maintaining pace with the growth of the business remains a crucial part of the process.

Tax considerations – Tax implications of each type of business assurance will be outlined, to ensure cover is structured in the most efficient manner.

Price vs value – Independent, objective advice ensures the best value in return for premiums paid.

Make sure that you are guided by a master planner to ensure you are fully equipped to mitigate any potential risks that your business may face.