As a business owner, you’ve put your heart and soul into building your enterprise. But what if something happened to you or one of your business partners? How would it affect your business and your family’s livelihood? That’s where business protection comes in. It allows you to focus on what you do best – running and growing your business – without constantly worrying about the “what ifs.”

Understanding Business Protection

Would your business survive if you or one of your key employees became seriously ill? What would happen to your business partner’s shares if they died? And would your family be financially secure if you passed away?

If at least one of these questions keeps you up at night, it’s time to think about business protection.

Think of it like life insurance, but for your business. It safeguards your company’s most valuable assets – its owners, shareholders, and key employees – and ensures that your business can continue even in challenging circumstances.

Why Is Business Protection Important?

As a business owner, it’s only natural to focus on immediate challenges like inflation or potential threats like fire or theft. But planning for the unexpected, such as death or serious illness, is just as crucial.

If you have a family depending on your income, business protection becomes even more important. Not only does it protect your partners and shareholders, but it also helps ensure your family’s financial security. Plus, it can provide income protection if illness prevents you from working.

The Benefits of Business Protection

Running a business is rewarding, but it comes with risks. With the right cover in place, you can minimize the impact should you or a key team member become ill or pass away.

  1. Financial Security: It provides funds to repay loans, cover profit loss, and replace key employees.
  2. Business Continuity: It can prevent ownership issues and control disputes, ensuring a smooth transition.
  3. Peace of Mind: Business protection offers security, giving you and your family peace of mind.

Types of Business Protection Insurance

There are two main types of business protection insurance: Keyperson Insurance and Shareholder Protection.

1. Keyperson Insurance

Keyperson Insurance helps protect your business from the financial impact of losing a crucial employee. If a key person passes away or can’t work due to a serious illness, the policy provides a lump sum to cover financial losses, hire a replacement, or support the business during the transition.

Key Benefits:

  • Protects against profit loss due to business interruption.
  • Covers recruitment and training costs for a replacement.
  • Helps repay outstanding loans guaranteed by the key person.

Keyman Insurance Taxation:

The premiums for Keyperson Insurance may or may not be tax-deductible depending on specific conditions. For instance:

  • There must be an employer-employee relationship.
  • The employee can’t own more than 15% of the company.
  • The policy only covers profit loss (not loan repayment).
  • The policy must be short-term.

If the premiums are tax-deductible, the proceeds are taxable. Otherwise, the proceeds are generally not taxable.

2. Shareholder Protection

Personal Shareholder Protection makes sure that you have the financial support to keep your business running if a partner passes away. Each partner takes out a life assurance policy so that their shares can be bought back and their family receives the equivalent cash value.

Alternatively, Corporate Shareholder Protection involves signing a legal agreement with each shareholder to buy back their shares upon death. The company takes out life insurance policies on all shareholders to have the necessary funds.

Key Benefits:

  • Provides funds to buy back shares from a deceased partner’s estate.
  • Ensures shareholders retain control of the business.
  • Financially protects the deceased partner’s family.

Partnership Insurance

If you run a partnership, it’s crucial to protect the partnership’s financial security by ensuring that funds are available to compensate the deceased partner’s estate. Without a formal partnership agreement, the Partnership Act of 1890 dissolves the partnership if a partner dies.

Setting Up Partnership Insurance:

  • Own Life in Trust: Each partner insures their own life for their share’s value, and proceeds go to trustees for the benefit of surviving partners.
  • Life of Another: Each partner takes out a policy on each of the other partners’ lives, and the proceeds are used to buy out the deceased partner’s share.

Secure Your Business Today

No one can predict the future, but you can certainly prepare for it. Whether you’re a budding entrepreneur or an established business owner, protecting your hard work and investments should be a priority.

Contact Roban Financial today to discuss the best insurance solutions for your business.