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  Ideas and Advice
  Getting insured for the worst —including these three scenarios
  By Keith Styles

Life is full of risks and pitfalls, in business especially.

Succeeding in any given venture is challenging enough, without having to worry about the unexpected consequences of illness and injury.

Most people are aware of the need to insure against property loss or damage, but what about the threat to your most valuable human resource—you, and the people who are vital to the continuing success of your business? The loss or temporary loss of key personnel can have a dramatic effect on any business, and can even be terminal.

Nobody wishes for early succession, but it’s something we all need to be ready for, should the worst happen.

It’s not unusual for a business owner to have a ‘mental succession plan’ without having fully realised his intentions and considered all possible outcomes and permutations. Business insurance makes sure your wishes are actually carried out.

Consider the following scenarios and options for businesses of various type. Each option will entail further challenges and decisions. How would you fare? What would you do?

1. What happens when a key person dies, becomes disabled, or suffers a major health trauma?

If the loss of the key person results in a reduction of revenue, profit or value, the owners may be faced with these choices:

  1. Recruit a qualified replacement, quickly
  2. Train an existing employee to do the job, quickly
  3. Contract work out to a qualified competitor
  4. Borrow to fund a reduction in cashflow quickly
  5. Sell assets to fund a reduction in cashflow

2. What happens when a business owner dies, becomes disabled, or suffers a major health trauma?

With the death or disablement of one of several business owners, who has been active in operating the business, then the remaining owners must accept one of the following alternatives:

  1. Buy out the deceased/disabled owner’s interest
  2. Take the deceased/disabled owner’s representatives into the business
  3. Sell the interest to the deceased/disabled owner’s representatives
  4. Take outsiders into the business to purchase the deceased/ disabled owner’s interest
  5. Liquidate the business or sell to a third party

3. What happens when a sole trader business owner dies, becomes disabled, or suffers a major health trauma?

Upon the death or disablement of a sole trader business owner, who has been active in operating the business, the executor of his/ her estate must decide to do one of the following:

  1. Liquidate the business
  2. Sell the business on the open market
  3. Give or sell the business to a successor owner from the deceased’s family
  4. Sell the business to one or more employees
  5. Sell the business to a competitor The business of personal insurance is increasingly about customising products to suit the wide-ranging needs of customers. The flexibility of today’s cover options mean life insurance is every bit as relevant as a commercial safety net, as it is a domestic one. You can choose from a product range including life insurance, income protection, disability cover, locum and business overheads cover. Your adviser can give you a full outline of the products and possibilities available to you.

Business protection: It’s not a case of can you afford it?’ but ‘can you afford to be without it?’ :

  • 1 in 6 males, and 1 in 9 females, over 30, will die before 65.
  • 1 in 6 females will be diagnosed with cancer between 30 and 64.
  • Males have a 2 in 5 chance of suffering a critical illness between the ages of 30 and 64. (>) There is a 37% chance of a female, and a 32% chance of a male, becoming disabled for six months or more, before the age of 65.

A good insurance plan can:

  • Eliminate any shortfall the successor may face, and reduce the need to borrow heavily to meet obligations to other family members.
  • Preserve the successor’s inheritance for investment outside of the business, in preparation for retirement.
  • Ensure a company has the resources to pay out a retired business owner’s current account with the family company.