What would happen to your business if you died?
Are you a business owner? Involved in a family business or a Director in a SME? Have you ever considered the impact the death of a key employee or business partner would have on your business?
It’s an unfortunate reality that business owners and their families throughout Ireland are facing this issue every day.
As a business owner, you protect your property, your vehicles and equipment. But have you considered what would happen to your business if you died prematurely and the financial impact that it could have on your family? Would your family stay in the business or would they sell the business?
You may also need to consider the impact on your business of the death of a key employee or business partner.
Would you have the funds available to buy your co-owner’s share of the business from their family? Would the business be able to sustain the financial loss on the death of a key employee?
Business Protection is an effective solution that can ensure there is a capital lump sum available to buy the deceased business partner’s share and / or help offset the financial impact of a key employee’s death. Having the means to buy a deceased partner’s share allows the remaining partners to retain full control of running of the business.
According to a recent survey by Royal London (formerly Caledonian Life) “People will put other forms of financial protection in place for their business such as insuring their premises, machinery or even its debt. However, they don't always protect what is the greatest asset any business has, namely the people who work in it.
“Given the 24% likelihood of one person in a two person firm dying before the age of 65 and the negative business and commercial implications this can have, it is worrying that businesses are overlooking this financial risk.”
There is a range of business protection solutions available to help businesses survive the death or indeed the serious illness of someone that would result in a financial loss for a business.
These solutions provide a number of benefits for businesses; They offer real peace of mind benefits to the directors or partners, as they remove the financial worries associated with the death or serious illness of a colleague. They remove the need for businesses or surviving partners to borrow money to buy out their partner’s share of the business. They remove the need for a surviving family member to take the deceased’s place in the business.
There are a number of different types of business protection solutions available to suit the different types of business structures.
Co-director’s insurance - This is where each director insures themselves against the death of their partner, enabling them to buy out the partner’s shares on death and/or serious illness. As an alternative, the insurance can be effected by the company itself.
Partnership insurance - Similar to the above, a partnership takes out insurance, protecting itself against the death or serious illness of an individual partner, enabling them to compensate the deceased partner’s estate for their share of the partnership.
Key person insurance - This helps a business to minimise the impact of the death or serious illness of a key employee. The insurance can be used to quickly attract a replacement employee or indeed to pay off loans of the company that may have been guaranteed by the deceased.
The key to finding the right solution is getting the right advice. If protecting the future of your business is a concern to you, always seek independent financial advice before committing to any long term plans.
Conor Harte is a Financial Planner with Wealthwise Financial Planning who are based in Block C, Hartley Business Park , Carrick on Shannon, www.wealthwise.ie All details and views contained within this article are for informational purposes only and does not constitute advice. Wealthwise Financial Planning makes no representations as to the accuracy, completeness or suitability of any information and will not be liable for any errors, omissions or any losses arising from its use. Wealthwise Financial Ltd T/A Wealthwise Financial Planning is Regulated by the central Bank of Ireland.#CI66141