RNS Independent Financial Advisers’ partner Andrew Clayton Douglas issues a reminder about the importance of business protection insurance.

Business protection is an important consideration for all types of business partnership.

Failure to consider it can have a dramatic impact on the viability and sustainability of a business.

What is business protection?

Business Protection is a specific type of life insurance designed to protect a business, its co-owners, and their families.

In the event of a business owner’s death, it pays a lump sum death benefit, which can be used to buy the deceased’s shares from their next of kin.

It can also pay a lump sum to the business itself, to provide emergency relief and help cash flow in case there is disruption following the business owner’s untimely death.

Business protection Insurance secures a lump sum payment for the bereaved, helps make sure that the business continues in good health, and that it stays in the hands of the surviving partner.

The insurance sits alongside a shareholders’ agreement, which documents your intentions about what happens with the business and who gets what in the event of an untimely death.

Consider the risks

If you or any other co-owners in your business were to die, the deceased’s shares would usually be passed on to the next of kin.

This poses several potential risks to the company.

They could become involved in business decisions without having the necessary skills or expertise.

They could sell the shares to somebody who is not qualified, or even to a competitor.

If you wanted to issue dividend payments, these would also be payable to the beneficiary, even if they aren’t involved in the day-to-day running of the business.

The situation also poses significant risks for the beneficiaries.

For example, the surviving business owners might not be able afford to pay the full market value of the deceased shares.

If you think your business is not protected against these risks, we would encourage you to speak to your accounts partner as soon as possible.

They will arrange for one of our financial advisers to provide a cost effective business protection plan, suitable for your circumstances.