Insurance for Business Owners
Business Assurance is a way of protecting the most valuable asset of a business: it’s people. Business Assurance cover is a type of Life Insurance which allows you to put cover in place to protect the business financially if you, an owner, or a leading figure in your organisation were to pass away. Executive Income Protection is a separate type of insurance for mitigating long-term illness risks, which we will not be discussing in this article.
It provides a lump sum payment to help keep the business running as well as cover any unexpected costs that crop up as a result.
The main types of Term Assurance Cover can be categorised as Keyperson, Partnership, Co-Director and Corporate Co-Director.
The value of the business and / or how the business values the individual, will need to be ascertained. Depending on how the policy is set up, there are differing tax treatments and reliefs available, therefore you should seek the assistance of your Legal Adviser and Tax Consultants in conjunction with your Financial Advisor prior to putting cover in place.
Keyperson Insurance
A Keyperson is anyone who the company depends on for its continued success, such as a Finance Director, or IT specialist. They may or may not be shareholders. The loss of their specialised skills, contacts or reputation must have detrimental impact to your business.
Keyperson Insurance is a Life Cover that is arranged by the Company on the life of the key employee. The company will receive a lump sum payment on the death of the insured and this can be used for things such as recruiting and training a suitable replacement, paying off outstanding loans and protecting the company against loss of profit.
Partnership Insurance
Under the Partnership Act 1890, the deceased Partner’s share of the Partnership automatically becomes the property of their estate. The death of a Partner could jeopardize the financial stability of the partnership as the remaining partners will have to either raise a capital sum to compensate the estate for their stake in the partnership or have the unwanted involvement of the next of kin.
Partnership Insurance is a Life Cover which is established through a legally binding agreement for one or more partners. The Life Cover that is put in place provides a lump sum payment which the remaining partners can use to purchase the deceased stake from the estate.
Co-Director Insurance
The sudden loss of a director through death or ill health can have very negative consequences on a business. The remaining directors would either have to raise capital to purchase the shareholdings off the next of kin or run the risk of their family gaining control of the company.
Co-Director Insurance is a Life Cover that is taken out by the Directors on the lives of the Directors, either in a Life of Another or Own Life in Trust capacity. A contract is entered into between each shareholding Director and gives them the option to acquire the shareholdings from the next of kin.
Co-Director Insurance pays a lump sum to allow the remaining directors to buy the shares from the deceased next of kin. This brings financial stability to the business, as the remaining directors keep full control of the company.
Corporate Co-Director Insurance
Similar to Co-Director insurance, however this Life Cover is taken out by the Company on the Life of the Directors. A contract is entered into between the company and each shareholding Director which gives the company the option to acquire the shareholdings from the next of kin.
Corporate Co-Director Insurance provides a lump sum payment to the Company and gives the company the security that there’ll be funds available to buy back shares if one of the directors passes away.
Author: Zarah McDonnell
Zarah McDonnell is a Qualified Financial Advisor of Compass Private Wealth with offices in Dublin and Cork.
Disclaimer: The above is generic in nature and does not constitute financial advice.