Shareholder Protection / Partnership Protection / Key Person Insurance Cover
These three Business Protection products all provide a very similar concept of Business Protection cover, paying a pre-determined lump sum if a key individual dies or becomes critically ill and unable to work.
All of these provide important insurance for small/medium businesses who rely heavily upon the expertise and experience of a finite group of employees in order to make money, grow and achieve success.
However, there are some fundamental differences between these policies and below we quickly examine these:
Shareholder protection allows business owners to buy shares back from any partner who is diagnosed with a critical or terminal illness, or dies. This policy helps surviving owners stay in control and minimises disruption to the business in what can be very difficult circumstances.
One of the financial implications may be that the owner’s widow, widower or other beneficiaries inherits the shares but may have an immediate need for money, while the surviving shareholders may want to buy the shares but might not have sufficient funds available.
Shareholder Cover can help business owner(s) to buy the insured shareholder’s interest in the firm (using the appropriate option agreement) and retain control over the running of the business.
This is ideal for Limited companies.
One of the great risks of a business partnership is that one of your partners may die or become critically ill, with his or her share of the business passing to someone else. That person may have little interest in the business, not have the same skill-set as the departing partner so unable to step up or even worse, may have completely different objectives to the other partners.
Equally a partner who suffers a serious illness may want to retain the option of continuing in the business or be compensated for their exit from the business.
The ideal solution is to have a partnership protection arrangement in place, to buy out a partner’s interest in the business should they die or become critically ill and unable to work.
This is ideal for partnerships and limited liability partnerships.
Key Person Cover
Key Person Cover can be for business owners or key employees within the company.
Key Person Cover allows you to protect your business from the financial impact of losing a key employee (including owners/managers), whose death or illness would have a significant impact on the financial position of the business.
It can be arranged to provide either a regular income if the key person is unable to work because of an illness or injury, or a lump sum if they die or are diagnosed with a critical illness. A lump sum would allow you to help replace the revenue generated by the loss of the key person or recruit a suitable replacement.
If you’d like an initial discussion about which policy(s) are best for your business and the structure of your company, please do contact us and we’ll be more than happy to assist.