Why Covid has shown that business protection insurance is more important than ever

Growing a business can be hard work, which is why you may feel a strong sense of pride for the success that you have achieved. This is why it’s important to protect everything you’ve built from the unexpected.

As you may have seen in the news, the coronavirus pandemic has had a particularly severe impact on the UK. According to government figures, the virus has claimed the lives of around 170,000 people since early 2020.

Surrounding yourself with people who you can trust and rely upon is an important part of growing any business. However, if they passed away suddenly, then not only could it be emotionally devastating, but it could also affect your company’s operations.

Thankfully, there are things you can do to avoid this possibility. Read on to find out why Covid has shown that business protection is more important than ever.

The pandemic has financially affected many small businesses in the UK

In recent months, the coronavirus pandemic has had a significant impact on many aspects of the economy. According to recent data from the Office for National Statistics, more than a quarter of UK businesses are experiencing lower turnover than they would normally expect for this time of year.

Due to the pandemic, many companies are reporting difficulties with hiring new staff, as well as disruption to global supply chains affecting their operations. These issues, coupled with lower consumer spending and rising inflation, have made a lot of business owners understandably nervous.

On top of these potential problems that could affect your business, there is also the obvious possibility of a key shareholder or member of staff passing away. If this happened, your business may not be able to continue to function smoothly. If this possibility concerns you, then you may want to consider putting protection in place.

There are several types of business protection insurance that you could benefit from

Business protection insurance can help to safeguard your company against the loss of some of its most important assets: its people. Taking out cover out against the possibility of losing a key person can give you greater financial peace of mind in case the unexpected were to happen.

Depending on what type of insurance you choose, the payout could help you to pay off some of your business’ debts or buy back shares from the family of a deceased colleague to ensure that you retain control over the business.

Taking out protection against the unexpected can save you a significant amount of time, money, and stress, which is why it’s important to find the cover that’s right for you. Some of the most common types of business protection insurance are:

1. Business loan protection

Many small businesses have some debt, whether that’s in the form of an overdraft, a commercial mortgage, or your own investment. However, the financial strain of the pandemic has led many companies to increase their commercial borrowing – perhaps through a Bounce Back Loan or similar government funding.

According to market data from the Bank of England, published by the Times, a third of small businesses now have a high level of debt. This is more than double the amount that it was prior to the pandemic.

If a colleague passes away, the disruption to your business could make it difficult to cover your debt obligations. This is where business loan protection can help, as it can be used to repay any outstanding debt if someone important in your business passes away.

2. Key person protection

As you may know, many small- and medium-sized businesses rely on a small handful of key people. For example, one of your colleagues might have specialist knowledge in a particular field, while another may be responsible for managing your relationship with clients.

If any of these people died, then it could cause a significant disruption to the operations of your business.

Key person protection is essentially a form of life insurance, which pays out if one of your essential colleagues passes away. Some plans also include critical illness cover, meaning that it will pay out if they become too sick to work.

The payout can be useful to pay for the costs of searching for a replacement, such as the training of a new member of staff. Furthermore, it can potentially cover some of the profit you may have lost due to the disruption.

Having key person protection in place can be invaluable for giving you a greater sense of stability if the unexpected were to happen, as well as confidence that you would be able to recover from it.

3. Shareholder protection insurance

If an important shareholder were to pass away, their shares would likely pass to a member of their family.

While this isn’t necessarily a bad thing, this could cause you some concern if the family member has a particularly large stake in your business and wants to be more active in the decision-making. In a worst-case scenario, this could lead to you losing an element of control in your own company.

In addition, the family of the deceased person may prefer to receive their benefits in cash, rather than a stake in a company they have no interest in being involved in on a day-to-day basis.

Of course, one of the most obvious solutions to this problem would be to buy back the shares of the deceased person. However, raising the capital to do so can sometimes be difficult.

Shareholder protection insurance is a type of cover that pays out on the death of a shareholder. The surviving shareholders may then use this money to purchase the shares from the deceased person’s beneficiaries.

This can give you greater peace of mind to know that no matter what the future brings, you won’t have to worry about retaining control of your company.

Get in touch

If you’d like to know more about which type of protection would best suit the needs of your business, please get in touch. Email enquiries@rosebridgeltd.com or call 01204 300010 to find out more about how we could help you.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.