Insurance: peace of mind and protection for you and your business

If the last 18 months have taught us anything, it is that being prepared for the unexpected is of the utmost importance. Weathering the recent economic conditions has been tough for any business owner, but particularly for those just starting out. While it might not be the most exciting of subjects when you are building your business, insurance is fundamental for any entrepreneur or business owner.

In this article, I take a look at income protection and shareholder protection insurance and how they protect your business should it ever face a crisis. By ensuring proper protection is in place, you safeguard your livelihood and ensure peace of mind for you and your family.?

Income protection insurance

Insurance isn’t just about protecting your business. When there is no employer to provide sick pay, you need to be able to provide for yourself – and your family – if you are unable to work.?

Income protection insurance is particularly important for new or smaller businesses that might not have the funds to weather the storm if you, or another key partner, is forced to take extended time off. Or where a long-term illness or injury might force you to close your business.

COVID-19 has made the need for income protection even more apparent, but when one in two people (NHS, 2019) are diagnosed with cancer at some point in their lives, and nearly half a million people (HSE, 2020/21) annually need time off work following an accident, protection planning has always been vital.

Shareholder protection

The loss, or incapacity, of a shareholder can disrupt a company but by having shareholder protection in place the interruption to your business will be minimised. It’s often overlooked when a business is set-up, but shareholder protection will allow the remaining partners, shareholding directors or members to remain in control of the business following the death of a business owner.

Shareholder protection enables business continuity, an improved tax position on the death of a shareholder, the deceased estate to receive funds in a timely manner, and creation of a ‘market’ for private company shares. As well as funds being made available to the individuals who wish to buy the shares.

Different types of income protection

A financial adviser will be able to advise the right type of income protection for you. As well as the level of income you need if you are unable to work, the correct cover for your occupation and type of business, and the different types of illness or accident that you could insure against.

If your family is dependent on your earnings, protection can provide you with an income if you are unable to work due to sickness or ill health, and critical illness cover will pay a lump sum if you are diagnosed with a serious illness. Small business income protection can also provide your employees with income if a key person in the business is unable to work.?

Depending on your goals, protection can also include term assurance to provide cover for a specific period of time – a mortgage term for instance. Or whole of life insurance will pay a lump sum on death – often used to pay inheritance tax. If you have loans or credit card debt, payment protection insurance will cover your payments for the period you are unable to work.

Different types of shareholder protection

Shareholder protection is typically facilitated through life assurance, a cross-option agreement, a business trust and critical illness cover.

For example, the use of life assurance to purchase shares ensures that the proceeds are available when required, to ensure a quick conclusion to the succession problem. Remaining partners might seek a loan to purchase shares, but it should be remembered that this would be done against the backdrop of a potentially traumatic period where the company has lost someone who is key to the business. Any lender would take this into account when arriving at the decision to lend.?

The use of trusts and a cross-option agreement when structuring shareholder protection help to ensure that the shares are purchased from the estate in a tax efficient way. The cross-option agreement ensures that the existing shareholders have an option to purchase the shares from the deceased’s trust. Similarly, the deceased estate has an option to sell the shares to the surviving shareholders. If either party exercise their option, the sale/purchase is enforceable.?

Insurance makes the difference

It doesn’t matter how good your business plan is, life will always be unpredictable. Insurance can make the difference between your business failing or surviving through a crisis. Having the right insurance will reduce stress for you and your loved ones at a difficult time and optimise your wealth for future generations.