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How To Use Life Insurance To Protect Your Business From Failure?
By Simon Christopher
What is your most valuable asset as a business?
Your business premises, its contents and all vehicles are no doubt properly insured and protected. But inanimate objects such as these don’t constitute a business, people do! So why then, do most businesses insure their executive’s cars but not the executives themselves.
Every business has certain key personnel who are vital to its success and prosperity. It might be the sales director, or it might be a specialist craftsman. Every business is different, but most directors will know which staff members are vital to prosperity. Without these valuable individuals, your business would most likely fail very quickly. In fact, the death of such key people is a major cause of business failure.
However, the damage caused by the prolonged absence of someone on whom a large part of the business depends is often underestimated or not even considered.
How to Protect Your Business
Business Protection gives your business financial help if the staff covered are affected by death, terminal or critical illness, or permanent disability during a benefit term.
You can choose the benefits you need and tailor them with additional features, such as waiver of premium during periods of incapacity, the choice of fixed or renewable terms and having index-linked benefits so that they stay in line with increases in inflation. In addition, you can change your benefits as your business needs change.
Business Protection covers the individual people you nominate in your policy or policies. If one of these people dies, is diagnosed with a terminal or critical illness the benefits are paid as follows:
For life cover and critical illness protection, a lump sum is paid on death or after diagnosis of one of the specified illness.
For business loan protection, a lump sum is also paid. However, this reduces to nil over the course of the policy.
What can benefits be used for?
Funds provided by business protection insurance policies can be used to:
•fund a permanent or temporary replacement
•tide the business over a period of reduced activity
•contribute to medical care to speed recovery
•repay an outstanding loan
Key Person Insurance
Key person protection can cover one
or two nominated individuals, who can be a partner or an employee. If they die or are diagnosed with a terminal or critical illness, the policy will pay a lump sum either on death or shortly after the diagnosis of a disease. Some policies will pay a regular income if they are absent from work for a long time.
Unforeseen Events
If a partner in a business dies, there may be other problems. Apart from their loss to everyday business activity, there may be imperative reasons to buy out their shareholding so that it does not pass to outside investors who do not share the vision of the company’s future. Such unforeseen events can lead to crises, reduced revenues and even, in some cases, business collapse.
Protection for the Self Employed
With no employer to turn to if ill health prevents them from working, the self employed have a greater need for protection than most.
If you’re self employed, being your own boss has many perks. You are in complete control of your destiny, the hours you work and even when the weekend starts. But not having an employer to pick up the pieces can have its disadvantages, particularly if unforeseen events such as ill health stop you from being able to work.
With work and being fully able to work so vital to your lifestyle you haven’t got time to be ill and, if you are ill, you want to be treated as fast as possible. Therefore self provision against this very real threat to your financial welfare is a must and a very prudent business decision.
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