Types of Business Protection
Key Man Insurance – also known as Key Person Insurance – is designed to protect the business against the loss of a key person.
This could be anyone from a business owner to key management figures or even simply someone with a great deal of specialist knowledge who makes the business what it is.
It’s designed to provide business continuity in the event of they key individual dying or becoming critically ill (if you’ve added Critical Illness Cover to your policy).
A payout can be used not only to hire and train a replacement key individual, but also to tackle a variety of difficulties the company could face in the wake of the loss of that individual, from a drop in profits to a lack of confidence from clients / key suppliers.
The policy is for the benefit of the business and is therefore usually owned and paid for by the business and underwritten based on the lives of the key people.
Shareholder Protection Insurance
When a shareholder of a business dies, the shares they own usually become part of their estate and are then transferred to the beneficiaries of their estate, typically their family.
This can cause problems when it comes to business succession planning, as the shares could have passed to someone without the aptitude for running a business or even, perhaps, the will to step up and do so.
To retain control of the business, funds must be raised to re-purchase the absent shareholder’s shares.
However, if funds cannot be raised from the remaining shareholders to re-purchase the absent shareholder’s shares, it may lead to the family receiving shares which they look to monetise, perhaps by selling to a competitor.
Shareholder Protection provides those funds by paying out into the company should a shareholder die or become critically ill.
This can also benefit the family / the critically ill shareholder, as it provides them with a ready buyer for the shares.
Business Loan Insurance
If you have an outstanding corporate debt – e.g. a commercial mortgage, funding from a venture capitalist / a lender, a business overdraft, a Directors Loan etc. – it’s worth protecting that debt in case a key person responsible for repaying it dies or becomes critically ill.
An uninsured business loan runs the risk of your company being declared insolvent after your death if it no longer has viable means to repay the loan. That’s why lenders and investors such as venture capital firms often expect this cover to be in place.
In the event of the death (or critical illness, if you’ve added Critical Illness Cover) or a person responsible for repaying the loan, the policy pays out into the business so the loan can be repaid.