This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxford).
Since March 2020 many businesses across the UK have struggled with staffing, revenue and customer engagement. The COVID-19 pandemic has forced many organisations to completely change strategy – perhaps even moving from “growth mode” to “survival mode”. Given the high stakes involved (e.g. lost jobs, suppliers and closure) it’s crucial for business owners to ensure that their interests enjoy maximum protection in 2020 and going into 2021.
Here at WMM, our Oxford-based financial planning team offers this short guide on business protection in 2020 – hopefully providing some ideas and inspiration about how to take your own business protection to the next level.
Key Man cover
One of the most important types of protection which all business types need to consider is Key Man Protection (or Key Person Protection). In simple terms, this is a policy which pays out a specific lump sum if a designated “key person” in your organisation dies. This could be the owner of the business or other crucial employee such as a senior sales person, chief technical officer or other vital staff member who you cannot afford to lose.
There are two main types of Key Person Protection to consider with your financial planner:
- Life Cover / Critical Illness Cover (CIC). This provides financial assistance should a key person become diagnosed with a certain illness or condition such as cancer, a stroke or heart attack. Cover such as this is often “bolted onto” the second type, below.
- Life insurance. The type of insurance described above – it pays a lump sum if the person covered by the policy dies or is diagnosed as terminally ill.
For limited companies with shareholders, the sudden unexpected loss of a key shareholder can cause big issues. Not only can there be emotional trauma after a close friend has suddenly left your presence, there can also be disputes over how to continue the company. If no appropriate shareholder protection is in place, after all, then the shares of the deceased automatically go to their estate. This typically puts their ownership into the hands of family members – who may have little/no experience or interest in taking over their management. In worst case situations, this can even lead to family members engaging in disruptive behaviour over how to take your business forwards. This is not something you want in the best of times – let alone in a pandemic.
Do I need either option for my business?
It would be tempting for a financial adviser to simply recommend that a business owner just takes out both of the above types of protection. Yet it’s important to weigh up each option with an experienced professional. Sole traders, for instance, will not require the second type – since you do not have any shareholders!
Key Person Protection, however, is likely a much more serious consideration for all types of business. One study suggested that 52% of UK businesses would likely collapse within 12 months if they suddenly lost a key person in their organisation. With the increased financial constraints in 2020 brought about by COVID-19 and the subsequent lockdown, it is likely that the danger is now even more pronounced.
Finding the right kind of cover, however, is not always easy and the best deals are not always clear – especially since many providers have increased their premiums since March 2020. Here at WMM, our team can assist you in identifying a suitable set of candidate policies which may be most suitable for your business needs.
Conclusion & invitation
Are you a business owner in Oxford looking to increase your protection? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM.
You can call us on 01869 331469