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What insurance do I need for my business?

At face value, insurance can seem expensive so it is important that you, as a business owner, understand the vulnerabilities and risks specific to your business to work out which insurance you need.

Business insurance is commonly overlooked by business owners. When you start up a business, you need to understand what risks your business is likely to face and then limit your exposure to these risks. 

A company structure only protects your personal finances to a degree

If you have formed a limited company and it fails, your personal finances are protected to the extent of your investment (i.e. the value of your shares). However, this so called ‘corporate veil’ will not help your business survive a fire, flood, natural disaster, theft or personal injury lawsuit. It will also not protect you if you are accused of being personally negligent. A frank assessment of the risks your business faces will help you obtain the right level of insurance to protect your business and its assets. Importantly, it means you are not left out of pocket if something unexpected happens.

About the author

Rume Oshenye

+44 (0)20 7556 1398
oshenyer@buzzacott.co.uk

Business insurance is commonly overlooked by business owners. When you start up a business, you need to understand what risks your business is likely to face and then limit your exposure to these risks. 

A company structure only protects your personal finances to a degree

If you have formed a limited company and it fails, your personal finances are protected to the extent of your investment (i.e. the value of your shares). However, this so called ‘corporate veil’ will not help your business survive a fire, flood, natural disaster, theft or personal injury lawsuit. It will also not protect you if you are accused of being personally negligent. A frank assessment of the risks your business faces will help you obtain the right level of insurance to protect your business and its assets. Importantly, it means you are not left out of pocket if something unexpected happens.

Life Cover

Life Cover – whole life or term assurance?

As a business owner you should consider life cover for yourself and other owners in the business. This provides a financial safety net for owners and their families and will pay out a lump sum if you (or the other owners) die during the policy term. Typically individual owners purchase a whole life policy, which offers the policyholder a guaranteed level of life cover for their whole lifetime. Such a policy will remain in force for your entire lifetime, provided required premiums are paid and will also pay out a lump sum to your beneficiaries in the event of your death.

The alternative is a term assurance policy which provides coverage for a fixed period of time; however this will only pay out to your beneficiaries if you die within the specified period and the policy is still active.

Additionally you can obtain company life insurance, where a pay-out is made to the business to ensure it has enough funds to deal with the loss of a key member of staff (these are discussed in further detail below).

Another insurance product to consider is a relevant life plan. These plans are a tax efficient way of your business providing valuable life cover for its employees and their families. These plans are considered a non-taxable benefit for the employees, while for the company the cost of the plan is normally an allowable expense, so the company gets tax relief on the premiums paid. This plan is designed to pay out a lump sum in the event of a director or employee dying or becoming terminally ill – where this occurs, the family of the director/employee will benefit.

What does keyman insurance cover?

What does keyman insurance cover?

A lot of business owners understand that the death or critical illness of a key worker can have a negative impact on the business and cause a slump in sales and profits. Key person protection, or what is better known as keyman insurance protects your company from the financial impact and uncertainty of losing key people through death or critical illness. In the event that a key person in your business dies or is critically ill, the policy will pay out a lump sum on the death of the insured key person, which could in turn be used to make up for a loss of business profits, possible liabilities to the bank and/or hire a replacement.

Shareholder Protection

Shareholder Protection

A further problem businesses face is that once a shareholder dies; the company or the surviving shareholders may struggle to raise the necessary funds to buy the deceased’s shares. Share protection will ensure that there are available funds for the remaining owners to purchase shares for a fair value from the estate of the deceased, so that control of the business is retained. 

As an added measure and to avoid any issues with the family of the deceased, you should consider seeking advice and drafting effective legal arrangements that allow the surviving shareholders the option to purchase the shares of the deceased shareholder and also provide the estate of the deceased shareholder the right to require the surviving shareholders to buy the shares of the deceased shareholder. These agreements should be carefully worded to ensure that business property relief is preserved and this is where specialist advice comes in.

In summary, there are many insurance products on offer in the market; however, the main reasons business owners are not insured are the cost of the premiums and a limited understanding of the different insurance products that exist and the associated benefits. Additionally, many do not see the benefits of insurance, unless they are in a position to make a claim. 

As each business is unique and has different vulnerabilities and risks, it is key that you evaluate these risks and understand the type of insurance cover required to meet your business needs. Book a quick call with one of our financial planning experts to get some help assessing what you need. 

Speak to an expert

We’ll explore other considerations for business owners in the rest of this series of articles but if you want to chat through any of the topics mentioned in this article, please pop your details in the form below and one of our experts will give you a call.

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