Ownership protection or buy/sell insurance is intended to provide insurance for all partners or shareholders in a small business. In the event of a shareholder’s death or disablement, the insurance provides capital to allow the remaining partners/shareholders to purchase the deceased/disabled person’s share of the business. The insurance on each of the partners/ shareholders should be proportionate to their respective share in the business. The factors that the underwriter needs to take into account include whether:
- The level of insurance proposed reflects the value of the business as demonstrated by the valuation, financial accounts and other supporting information available
- The level of insurance reflects the percentage ownership of the life to be insured
- There is sufficient personal insurance in place or proposed for the life to be Insured
- There is a buy/sell agreement in place or being put in place all business partners are effecting insurance.
Revenue protection insurance is used to offset the expected loss experienced by a business if key people within the organization die or become disabled. A key person is someone who is critical to the financial health of a business. They may possess specific knowledge and experience and valuable personal contacts, and they may provide financial support to the business so that, in the event of their death or disability, the business may not be able to continue without a replacement or will suffer a significant financial loss. The form of the loss may be a reduction of profitability, or an interruption to business activities or to the ability of the business to service its commitments. Recruitment costs may also be incurred in finding a replacement. The factors that the underwriter needs to take into account include:
- Whether the level of insurance proposed reflects the value of the key person.
- That the method used to value the key person is reasonable.
- The business structure, turnover, net profit.
- The key person’s financial interest / share in the business.
- The key person’s remuneration package.
- Any other insurance that is in force on the key person.
That for an arm’s length employee (a key person who does not have a financial interest / share in the business) insurance will usually be restricted to 10 times the remuneration package. Asset (Debt) Protection or loan
As your business expands it becomes more critical to look at the insurances you have in place. Together we can look at strategies to allow for future growth that compliment your current business structure.
Business growth can be one of the hardest things in business to control. Business growth also represent one of the key components to why some business fail. We here at PFS have worked in numerous industries from supply chain, manufacturing and production. Don’t let your business suffer from not asking for help. We here at PFS have the skills and expertise to help your business and understands your personal situation.