In an individual’s personal life there can be a need for various types of protection which an appropriate insurance policy can cater for, e.g. income protection or critical illness. Similarly, there are needs which businesses have, that insurance policies can cater for. 

If you discuss insurance with business owners and managers, they`ll tell you that insurance is one of their basic running costs. These include insurance for buildings and contents, public liability, key equipment, stock and motor vehicles to name a few. However, what all these have in common is that they involve physical assets. They do not include arguably their most important asset, their people.

This is very important because, without appropriate business insurance, it could be that trading has to cease, or the ownership could pass to totally unqualified individuals.

The purpose of this article is to provide an overview of the various types of business protection needs which centre on their people involved in a business and the types of insurance policies available to meet them.

Key Person Protection

This is perhaps the most commonly known version of business protection. This helps a business keep trading where a business loses a key person through death or serious illness, which would have a damaging effect on the business.

The damaging effects could come about because of a loss of a person whose reputation, key skills and contacts, might make the company vulnerable to competitors, or otherwise run into problems.

The purpose of the insurance payment is to alleviate the financial damage incurred because of the loss of a key person and finding a suitable replacement, which could be expensive and time consuming.

Shareholder/Partnership Protection

This helps the owners of the business to look after each other and their families.

If through death or serious ill health, a shareholder or partner can no longer participate in the running of the business, then this could have a serious impact on the business and their family as the question facing them is: what happens to the business?

The shareholder or partner, or their family, may want to sell, but even if the remaining shareholders or partners want to buy, they may not be able to raise the funds. This may mean leaving the remaining owners in business with unsuitable new owners, or unqualified owners who inherited their ownership.

It may even lead to the situation whereby the banks and creditors may decide to renegotiate terms or call in debts if the ownership changes. The purpose of the insurance payment is to avoid these kinds of problems. It does this by providing the remaining shareholders or partners with the funds to purchase the share of the business from those who inherited the ownership on death or the shareholder or partner with serious ill health.

Business Loan Protection 

This, as the name suggests, helps a business pay off its debts.

Where a business has a loan or other debt, including a loan account, it is usually critical to make the repayments when they fall due.

The purpose of the insurance payment is to provide the means of paying off the loan. Failure to do so might otherwise result in the remaining directors or partners personally being held responsible for any outstanding financial liabilities.  

In summary, if you are running a business and are aware that the loss of a key person could cause problems, be costly and time consuming to resolve, or if you think that your business might have difficulties in servicing any outstanding debt or loans in similar circumstances, then you ought to consider arranging appropriate business protection policies.

Similarly, if you, as a shareholder or partner, are aware that the death or serious ill health of another shareholder or partner could result in them being replaced by unsuitable, new shareholders or partners, then again, you ought to consider arranging appropriate protection policies.

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