As every businessperson knows, the cornerstone of any good business is strong financial planning. With the right cover, your business remains protected, if the unexpected should occur.
Sally and Eimear are friends since college. They set up a business selling luxury gifts made in Ireland. Sally is the numbers person and Eimear is the marketing and customer services person. Sally is a finance wizard and makes sure there’s good cash flow. Eimear can sell anything to anyone and is amazing at customer care. Together they’re a very good team and they are strong in different areas and concentrate on those. As they’ve expanded the business they’ve taken on debt but it’s all manageable.
Life can catch you out though and Sally falls ill and dies. Sally has left a spouse and two young children after her. Sally had life insurance and so her partner and kids are taken care of financially but half the business is now owned by Sally’s partner. Without Sally’s financial skills, the business begins to suffer and falls behind on debt repayments and cash flow has taken a hit. The creditors want to call in their debt. Sally’s partner is now a joint owner but does not know how to run the business and doesn’t have the time.
In companies, particularly SMEs, there can be an individual or individuals that are crucial, or key to the success of the company. If the company was to lose these individuals to death or illness, it could place the survival of the business at added risk. This could be your CTO, the CEO, your top sales person, anyone that is crucial for your success.
MBC Financial Limited assists you in understanding that those people that generate most income for you are a valuable asset, more valuable than machinery. Yet as a company you wouldn't think twice about insuring your equipment. Key Man insurance is the way to protect the company from if you lose these valuable members of staff to death or major illness.
Key Person Insurance or Key Man Insurance entails the application of a Life Assurance Policy initiated by a company on the life of one of its employees or directors with a view to compensating the company for an anticipated financial loss in the event of the death, contraction and survival of a specified Critical Illness, of the individual concerned.
Such a plan is designed to allow the company to put structures and arrangements in place to financially protect the business
with a cash lump sum, capable of helping the business deal with the ensuing challenges which may involve:
The loss of a business partner or shareholder can have serious implications for any company. In the case of the death of a business partner, as well as losing a key contributor to the management of the organisation, shares in the company can pass on to their immediate family, which can pose questions for the business going forward:
Partnership Protection Insurance protects both the company and the new shareholders in the event of the death of a partner.
It’s a good idea get legal and financial advice before taking out Partnership Protection Insurance as there may be circumstances where this arrangement may not be suitable.
The loss of a major shareholder can have serious questions for the company owners and other shareholders:
In this case, a contract can be drawn up by which the company buys back the shares in the event of the shareholder’s death. As a result, Shareholder Protection Insurance could prove invaluable to protect the company from a major loss.
It’s advisable to get legal and financial advice before entering into an agreement regarding Shareholder Protection Insurance, as there may be circumstances where this arrangement may not be suitable.
This is a business-specific life insurance that can compensate a company for the financial loss and other consequences of the death of an important member of the business.
You will pay a premium on a regular basis, based on the cover that is required. If the unexpected happens and this person dies, or becomes seriously ill, the policy will provide a lump sum to compensate for this event.
Protection: If a key employee dies, a cash sum is paid to help maintain the business.
Continuity: Can help minimise interruption to business activity.
Financial assistance: Can help with bank loans that involved the key person.
Staffing: Can help provide resources to find a suitable replacement for the employee.
This kind of life insurance is taken out by a company of any size, where there is a need to protect against the loss of an extremely valued employee of high financial or strategic importance to the business.
Availing of this kind of life insurance can give additional security to your business, as it safeguards against the loss of a key employee. As an employer, it can bring you peace of mind in the knowledge that you are protected from the financial fall-out due from the death or incapacity of a very important member of your staff.
The owner of the key person and policy would be the actual business itself, whether that's a limited company or a sole trader. What the key person insurance is designed to do is to protect a business from a financial aspect.
There are two ways you can use a key person plan: Number one would be that if the business took out a loan, it would just protect the loan in the event if something happened to the key person that the loan gets paid back. The second way on how a key person would work is that whether it's the managing director or the sales director or a key employee, that if they were out of work a long time or for argument's sake they die prematurely, then the business would be paid a lump sum to financially protect the business as a result of that particular person dying or getting critically ill.
If there are no investigations with regard to the premature death or the critical illness, then it is generally paid off within four to six weeks.
There is another type of business insurance called co-director cover. Co-director cover is for limited companies where you have multiple directors. In the event of one director dying prematurely, there's a lump sum paid to the company to allow the company to buy out the deceased shareholders' estate. This would protect a company from a financial point of view.
This is business-specific life insurance that can provide compensation to shareholders of a company. If one of the directors dies, a lump sum will be released, enabling the surviving directors to buy the deceased person's shares from their next-of-kin.
Partnership Protection Insurance can be taken out at any stage of your company's lifetime. You will pay a premium on a regular basis, based on the cover that is required and the value of the shares of the director.
Ease and Choice: The deceased's successor is not obliged to become involved in the business.
Stability: The remaining directors can retain ownership of the company and provide continuity for the business.
Options: This insurance can also provide serious illness cover.
Partnership Protection Insurance can be taken out by the directors of a company of any size. It will provide funds to allow for the purchase of the shares from next-of-kin, in the event of the death of one of the directors.
The death of a director may bring distress and grief to any organisation. As well as that, it could jeopardize the security and direction of the company. If the deceased director was a majority stakeholder, the remaining directors may lose control of the company if next-of-kin were to take over.
Financial Planning Standards Board
Certified Financial Planner