Running a business can be risky. Your unexpected death or disablement, or that of a business associate, could seriously risk the ongoing viability of your business.
Adequate business protection insurance can help minimise the risk – without it your family and your business associates could find their financial security is jeopardised.
When asked what are their most important assets, business owners invariably think of physical assets. They are valuable to every business, but it’s the intellectual capital provided by the key people – like you and your business associates – that employ these assets to generate the business’s profits.
Where the ongoing profitability and capital value of the business is largely reliant on the input of a key person of the business, it follows that business owners should never underestimate the importance of a key person as a crucial human asset of the business, critical to its success.
Key person insurance is a policy that can help you recognise the value and contribution of the key people in your organisation. In the event of the untimely death or disablement of a key person the proceeds of the policy may be used to replace the key person, extinguish debts, or both. It protects your business against the financial hardship that may occur when experience is lost and can also cover the high cost of training and replacing human resources.
Key person insurance cover is a simple, cost-effective solution that provides security and certainty for a business.
The basic protection needs that typically apply to businesses are:
Revenue Protection:
Where a business is likely to suffer a cash flow crisis without the input of the key person, business protection insurance can be used to cover higher working expenses, or reduced income.
Typical examples include:
v The cost to a business of “Head-Hunting” a replacement for the Key Person, and the financial drain on the business getting that person up to speed.
v Reduced business income where the key person has a large role in generating cash flow and profits.
Asset Protection:
This is appropriate where the loss of the Key person may cause a capital loss in the business.
Examples where business protection insurance can help include:
v Repayment of borrowings. This gets the bank out of the picture, and prevents them from dictating terms and running fire-sales.
v Boost the cash reserves of the company. This can restore shareholder equity where the value of the business is permanently affected with the loss of the key person.
Business Succession Planning
The death or disability of a business owner can result in the demise of an otherwise viable business simply because of the lack of business succession planning.
Every business should give serious consideration to how business ownership would be transferred in the event of the unforeseen exit of a partner or shareholder. Without a formal agreement the business exposes itself to financial claims from the estate, creditors and banks.
Business Succession structures a formal agreement on how business equity is distributed when a partner or shareholder exits the business through death or disablement.
The plan includes putting in place the necessary valuations, legal agreements and insurance policies. These arrangements guarantee that the departing partner or shareholder receives
a fair price for their equity while the survivors maintain control of the business.
Business protection cover can provide the outgoing owner, or their nominee, with sufficient cash for the transfer of their equity to the continuing owners, if a business owner dies, is disabled or suffers a critical illness.
Traill Insurance Solutions can assist you with all of your business protection insurance needs.
To see business insurance in action, please refer to the case studies tab on the right of this page. 
