A few years ago, I met someone who had recently joined a company where the sole director was left in a coma following an accident. No one had powers of attorney, so no decisions could be made and no bills could be paid for the business.
It brought home to me how important it is for a business to have an IFA, just as much as it is for an individual.
You might remember that I often say the most important thing an IFA offers is a sounding board to help you consider different scenarios. For example, when considering protection you have to look at cover for sickness as well as life insurance. In both cases, you need to consider the impact on the business-owner as well as on the firm.
A business owner needs to decide how they would replace their income if they fall sick, and should consider taking out:
- Critical Illness insurance which will pay out a lump sum if they are diagnosed with a critical illness such as heart attack, stroke and some forms of cancer
- Income Replacement insurance which is designed to replace income lost during illness or accident
The business needs to consider Key Man insurance to cover employees whose long- term sickness would affect the company’s bottom line. This not only helps to protect your business profit but could also allow time for another individual to be trained up.
Different issues need to be considered to protect the business against the death of an owner. Generally speaking, when a director or a partner dies, the value of their shares will pass to their estate. Often, the shares will then pass to a spouse or family member who might have no desire to be tied up in the business.
Shareholder or Partnership Protection is designed to pay out a lump sum equal to the value of the shares in the business. This enables the remaining directors/partners to buy back the deceased’s shares, which ensures the family gets the value they deserve whilst at the same time protecting the business. When planning this, you should also consult your solicitor because other legal agreements need to be in place to make this happen.
At Monetary Solutions Ltd, you can book a free initial consultation about any financial matters, so please call us on 020 8655 8488.