Have you considered what would happen to your business if you or a key person became ill or passed away? It’s something that many business owners overlook. Yet, the potential consequences of not protecting your business could be huge.

There are practical steps you can take to help ensure your business can continue operating should the worst happen. Here are three options you might want to weigh up.

1. Key person insurance

Key person insurance would pay out a tax-free lump sum or regular income to your business if someone named within the policy is diagnosed with a serious illness or passes away.

This type of insurance is designed to protect a business if certain employees are essential for the success of the company. This could include you, as the business owner, and others. It can be especially useful for small businesses, where there may only be one person who can complete specific tasks and their loss could have major consequences.

The payout from a key person insurance policy can help the business replace lost profits or recruit someone to fill the role if necessary.

If you think key person insurance could be right for your business, consider who contributes to the success of your firm. This could be your leadership team, someone with technical knowledge, or a long-standing employee who is crucial for keeping operations running smoothly.

You should also consider what level of cover your business would need to remain secure and the deferment period of the policy. Take some time to review a policy you’re considering to understand how comprehensive it is and whether it provides adequate protection.

2. Shareholder protection insurance

Who owns shares in your business, and what would happen if they passed away? Could you afford to purchase their share?

Considering death is difficult, but it’s important to ensure your business has the right protection in place.

A shareholder protection policy is a binding agreement between shareholders. It ensures the shares remain in the business, rather than being inherited with the deceased’s other assets or sold. The policy also ensures that the business has the cash to buy the shares if necessary, which can protect your business if the worst happens.

It can also be beneficial to the deceased’s family, who will have a willing buyer for the shares at a time when they may be more in need of liquid assets or have no interest in being involved in the running of the business.

3. Business Lasting Power of Attorney

It’s important to consider what would happen to your business if you were unable to make decisions. This could be temporary, such as if you’re taking a holiday, or long-term if an accident or illness affects your mental capacity.

If this happened, would your business be able to operate? Could tasks such as authorising bill payments or paying salaries still be completed? A business Lasting Power of Attorney (LPA) can protect your interests and those of the business.

It would give someone you trust the ability to make decisions on your behalf. If you didn’t make a business LPA and were unable to make decisions, the Court of Protection could appoint a deputy to act on your behalf. Appointing a deputy could potentially take months, which could leave your business in a vulnerable position, and it may not be the person that you’d choose.

A business LPA can be part of your continuity plan to avoid business disruption.

In some cases, it is possible to have just one LPA covering both your personal and business affairs. However, you should consider if having the same person is appropriate, as it could create a potential conflict of interest, and they may not have the necessary skills. While you may want your partner to handle your personal assets, would they feel comfortable making business decisions too?

Contact us

We could help you assess how you might protect your business and personal affairs should the unexpected happen. Please get in touch to arrange a meeting.

Please note:

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

The Financial Conduct Authority does not regulate Lasting Power of Attorney.