- Stock and Plant
- Commercial Building
- Asset Protection
- Key Person
- Public Liability
- Employers Liability
- Statutory Liability
- Professional Indemnity
- Loss of Profits
- Shareholder Protection
- Succession Planning
Maintain business as usual – even if one of your key people can’t work – with financial help if you hit unexpected setbacks.
We all know that a business is only as good as its people. So while you may have implemented plans to protect your buildings, equipment and other assets, it’s important you don’t forget about protecting your most important asset – your key people. These people may be critical to your trading operations.
How would your business cope if it was to lose a key person?
Key person insurance, also formerly called key man insurance, is an important form of business insurance. There is no legal definition for “key person insurance”. In general, it can be described as an insurance policy taken out by a business to compensate that business for financial losses that would arise from the death or extended incapacity of the member of the business specified on the policy. The policy’s term does not extend beyond the period of the key person’s usefulness to the business. The aim is to compensate the business for losses and facilitate business continuity. Key person insurance does not indemnify the actual losses incurred but compensates with a fixed monetary sum as specified on the insurance policy.
An employer may take out a key person insurance policy on the life or health of any employee whose knowledge, work, or overall contribution is considered uniquely valuable to the company. The employer does this to offset the costs (such as hiring temporary help or recruiting a successor) and losses (such as a decreased ability to transact business until successors are trained) which the employer is likely to suffer in the event of the loss of a key person.
As a farm owner, you can face a number of different risks. Rural Insurance products include:
- Farming interruption
- Specialist Farm Insurance (DairySure, Stud livestock, Crops)
Shareholder protection insurance protects each of the shareholders. On the death or diagnosis of a critical illness of a shareholder, the other shareholders receive a cash lump sum which can then be used to buy the affected shareholder’s shares.
This method ensures that the shareholder’s family receive their part of the inheritance as quickly as possible whilst there is minimum disruption to the company.
Why is Shareholder Protection Insurance Important?
A company’s Articles of Association deal with the issues of transferring and selling shares. In most cases the deceased or critically ill shareholder’s shares pass to their beneficiaries who obviously have a right to their inheritance. From the company’s perspective this means that not only do they have a new shareholder, but they also have to pay that shareholder a percentage of company profits each year whilst that shareholder probably adds little or nothing to the running or profitability of the company. It could also mean that the shareholder’s estate might sell their shares to a third party who the company might not want to be in business with.
The likelihood is that the surviving shareholders will want to retain control of the company. Shareholder Protection Insurance allows the company to do this. Many companies adopt a pre-emption clause in their Articles of Association which allow the shareholders the right to buy the shares of the deceased or critically ill shareholder. Companies without Shareholder Protection Insurance often try to borrow the money from banks to do this but not only can this create a large debt for the company but the banks can be reluctant to lend if they feel that the deceased or critically ill shareholder was key to the running of the business.
Clearly Shareholder Protection Insurance is important to the company and to the shareholders estates.
Ever considered what might happen to the control and future ownership of your business if one of the partners or shareholders were to die or become seriously disabled?
You may be forced to go into business with someone you’d rather not be in business with – your deceased partner’s widow, their son or daughter, or even their widow’s second husband’s lawyer.
Additionally, how important is it that your estate and dependents receive a fair price for your shares or business interest?
What can a business succession plan do?
An effective business succession plan can ensure that future control of the business stays with those in the business. It can provide the funds and mechanism for the sale and purchase of a business interest and help find a future owner or owners for the business. It can also provide the means whereby an existing business owner can receive a fair price for his or her business interest.
If you would like to learn more about any of these products, Contact us today.