It is highly advisable that anyone who runs their own business takes out business assurance, which is a broad term for a range of life assurance products that are designed to cover various scenarios and requirements.
Running a successful business often takes considerable financial investment, but many business owners fail to plan for what happens in the event that they die, become disabled or severely ill; or if they lose one of their key employees for one of the same reasons.
However, it is essential to consider all risks in order to avoid adverse consequences for the business, and your dependants, as often a family’s financial health is intertwined with the health of a business. This blog serves as an overview to how this product could bolster your portfolio, but for your specific needs it is always best to setup a meeting for us to chat directly to your situation.
What is business assurance?
Generally speaking, business assurance is risk and/or investment assurance that will protect a business in the event that someone essential to the operation — be that an owner, a director or a key employee — dies or becomes disabled.
Business assurance not only protects those involved against potentially dire financial consequences, but it can also be used to prevent any main employees from leaving to work for a competitor by providing them with a policy that will mature to their future financial benefit.
Arguably, one of the principal purposes of business assurance is to ensure that a business can continue to be fully operational after an unfortunate loss of a key player, so as to protect the owner(s) and their dependants from financial hardship.
The last thing you would want in the event of your passing would be to leave your dependants or your business in dire straits. This is particularly the case if your business has an overdraft, which you have secured in a personal capacity. The appropriate assurance product will allow you to rest assured that any loans will be repaid when you die, so that your loved ones won’t suffer further. When setting up a business, it is, therefore, vital to carefully consider all financial risks, and take the appropriate measures to negate those risks.
Business structures
One of the most important aspects to consider when setting up a business is its ownership structure, as whether you choose to structure your business as a sole proprietorship, a partnership, a close corporation (CC), a company, or a small business corporation will determine the type of business assurance you will need.
All of these types of business structures have different implications when it comes to financial planning, and each business assurance product has different tax consequences that must be taken into account.
For example, there will be more tax obligations for a sole proprietor at death than someone who is a shareholder in a company. It is, therefore, extremely important that a sole proprietor ensures that any debts — including income tax and CGT — can be paid in the event of their death, so as not to leave debts to their dependents.
Most businesses tend to consist of three distinct levels — the owner, the management, and the employees. All involved parties have particular risks and financial needs that can be covered by a business assurance product.
The consequences and financial risks of each business structure should be carefully analysed to establish what type of business assurance is needed. This will require regular valuations and cash flow assessments, as well as taking into consideration any tax obligations and capital investment borrowings.
Question time
Business owners should ask themselves some hypothetical questions when it comes to making necessary arrangements for business assurance. Can your family still draw an income from the business if you die? In the event of your death, how can you unlock the value of your shareholding for your family’s benefit? Will there be any conflicts of interest between your family and business partners that you need to mitigate before your passing?
In the event that you cannot simply leave your business to a family member to run, it’s wise to ensure that you have done all that you can to guard your heirs against any risks, rather than leaving anything to chance. Usually, in the event of death, your share of a business would become part of your estate — but other people involved may have different ideas, and it’s best to avoid any unnecessary complications if possible. Written agreements, as well as appropriate life assurance and disability cover, can help a great deal in this regard. If you structure your policy holdings well, you could even save in terms of capital gains tax and estate duty, so it is important to make sure you correctly implement and structure your financial plan so that your loved ones can reap the most benefits possible.
Don’t hesitate to arrange a meeting if you wish to discuss your options and their implications.
