A business runs on its human capital and its most important people are its key employees and the business owners.
A business key-person could be anyone whose absence would affect the profitability of the business; eg: if they were to die or become disabled and unable to continue to work.
Some typical examples of key people could be:
- Director, Managing Director or CEO
- Partner in a partnership
- An employee with a particular skill or technical expertise
- Senior sales manager
Insurance to cover the absence of a key person can help in keeping the business running (by replacing lost revenue, repaying debts and/or finding a replacement).
All of these people can qualify for personal insurances even if they may have a particular health condition that would make the outcome of a traditional insurance application more uncertain.
- Read the video transcript below.
He's a big fan of the party life and 'works hard so he can play hard'. If you ever got into a serious conversation with him, he's an open-minded no-labels kind of guy.
His work ute looks as good as he does and he's in high demand on Saturday night - and always swipes right - if you know what we mean.
This question has always intrigued me because it sounds similar to the equally difficult-to-answer question, ‘how long is a piece of string?’
I suppose the answer is, ‘as long as it needs to be and as much as you need to have’.
But that's probably not going to move the answer along much, so here is a good place to start your thinking.
Business Owners and Professional Partners have unique risks and needs not usually adequately covered by their private family insurance plans.
Business is filled with uncertainty. Now you can plan for that.
While the risks to businesses are seemingly unending, the personal risks to Owners and Professional Partners can usually be found in 4 areas.
- Business Key Person and Debt protection
- Business Fixed Expenses protection
- Business Owners and Professional Partnerships protection
- Business Owner and Partnership Succession protection.
These become increasingly sensitive and complicated issues for business owners and business partners who may have specific personal medical issues that deserve an enhanced level of privacy and are kept totally separate from their commercial activities.
- Company directors may need to use life insurance to protect the company trading debts, the director's account (when Director's funds have been lent to the company) or to protect the capital investment.
- Business partners may need to use insurances to limit becoming personally liable for company losses as their personal homes are often cross-securing the company debts.
- Partnerships and Investors may require company key-persons to use a range of insurances to help protect capital invested.
Why is this really important?
Personal insurance applications are one of the very few areas in business life where an individual's personal health and lifestyle is mandatorily required to be disclosed.
- Your private health and lifestyle history is considered an integral part of the insurance application and assessment process. This is because personal insurances are contracts between the life insured/policy owner and the life insurance company, so there's a legal duty to take reasonable steps not to mislead under Section 20B of the Insurance Contracts Act, requiring the full and frank disclosure of all personal sensitive medical and personal health data.
- Should an application for insurance be formerly declined, this can have unintended and long-lasting effects on so many areas that it becomes a risk to all future insurance.
This is why you need a specialty financial adviser from unusualrisks.com.au to help an individual and their company through the process.Read our article published on LinkedIn Pulse - Professional people with chronic health conditions need their own life insurance adviser - and this is why (or in our blog here) about why many professionals and business owners are using our services for enhanced privacy.
How it all comes together.
The death or disablement of a key person could have a significant impact on the revenue of a business and therefore its ability to meet its day-to-day expenses.
- This could be because the key person for example, has a unique skill or has particular knowledge relevant to the business or has relationships with key clients nationally or internationally.
Business Overheads cover, (also known as fixed business expenses cover), allows a business to continue to pay its fixed expenses if one of the business owners becomes sick or injured.
- This type of cover usually pays a monthly benefit to the business, to meet its day-to-day fixed costs, generally for up to 12 months, if the insured person is disabled and is unable to work in the business at their full capacity.
- All family businesses need an insurance firewall to reduce business liabilities becoming personal liabilities.
Insurance policies to cover business overheads are generally owned by the business entity, sole traders or partners (in the case of a partnership and the policy premiums are generally tax-deductible, and the proceeds are treated as assessable income to the business.
Building protection into your business planning is one of the most important decisions you can make.
At some point, many businesses will borrow money from a financial institution or a director – this may be to provide a business with capital for a major purchase or improvement, or simply to provide a source of working capital.
The purpose of business debt reduction insurance is to protect the business against its debts and to protect the guarantor and their estate against any claim over their personal assets.
- If the Key-person or Guarantor to a business loan experienced a serious illness, accident or worst - an unexpected death - a business could experience significant financial difficulty and may find it hard to continue to meet all of its loan repayments.
- A loan default could result and then trigger a 'call-up' of the business loan facility (usually 7 days notice) with a demand for the loan to be repaid in full.
Most 'at call loans' deem a Key Person death or disability as an automatic trigger event to call up the loan.
If you own a business with other people, it’s important for everyone to agree on how the ownership of the business will be transferred, should one of the owners (or principals) pass away, become disabled, or leave the business for another reason; eg: resignation or retirement.
- This is referred to as business continuation or succession, planning.
How that is made possible is usually heavily dependent upon;
- successfully applying and establishing personal insurances for protecting business risks, and
- involves the full and frank disclosures of all personal sensitive health and lifestyle information.
These create multiple specialty risks.
Unusual risks are the experts to manage and protect the information security and advice structures required by these business owners and professional partnerships.
Are you a business owner with additional business-related risk needs to consider?
For small business Business Owners, our parent brand Sapience Financial has a significantly more detailed website designed especially for Professionals, Partnerships & Business Owners (and their families) where we address many of the risks and personal liabilities many business people (and their families) carry. On that website site business owners can browse through more tailored information and education on business risks.
Feel free to continue yoiur business conversation with our small business financial advice brand Sapience Financial, here.
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Many people in professional business use life insurance products but...