Business Protection Insurance UK: 3 Ways to Protect Your Business Profits

Date: 2 August 2019 Author: Lewis Cable

Unexpectedly losing an important member of staff can significantly affect your company’s profits. This brief introduction to business protection insurance UK will give you 3 ways to protect your business profits in the event of an important staff member’s loss.

Why Have Business Protection Insurance?

Before we look at how you can protect your business profits, let’s take a moment to think about why you should consider doing so…

Your company, like virtually every other company in the UK, is likely to have at least one or two staff members who are of utmost importance to the smooth running and success of your business. This could, for example, be:

Yourself, a partner, shareholder or director who may be acting as a guarantor for business loans (commercial mortgage, overdraft facilities, development loans, other finance) and/or have exceptional leadership skills
A sales, production or other manager with unrivalled experience and/or leadership skills
A highly skilled/talented technical expert or designer
Any other employee with unique skills/talents crucial to your business’ success

Losing one of these important individuals through death or critical illness could result in your business immediately losing:

Productivity and thus profitability
Crucial business contacts and/or contracts developed/maintained by this person
Goodwill and confidence/trust of suppliers/customers in your business

If any of your business liabilities were secured against this person and/or he/she was a shareholder, you may also have to:

Immediately repay relevant outstanding debts in full. This could put your business under significant financial pressure if the funds to make such repayments are not readily accessible.
Deal with the consequences of his/her shares being passed on to their next of kin, which could significantly impact your company’s smooth running and success if the next of kin decide to:

Get involved in the business but have no previous experience/knowledge of how you operate, or
Sell the shares, which – unless your company has the financial resources to purchase them immediately – could result in them being sold to competitors

Your company may also have to advertise for, recruit and train a replacement for this valuable person, which will invariably involve a great deal of additional expense.

In a nutshell, losing an invaluable member of staff could put your business’ financial future at risk. Protecting yourself against such a loss is therefore imperative.

Ways to Protect Your Business Profits

There are several ways of effectively protecting your business’ financial future, including:

Key Person Insurance – A type of life insurance to which critical illness cover may be added, this type of policy will pay out a lump sum in the event of a named individual’s death or critical illness (if added). Your company can then use this lump sum to mitigate the financial impact of this person’s death/illness on your business.
Shareholder Protection – Again consisting of life insurance cover, this type of policy will provide the necessary funds to buy a deceased shareholder’s shares and for remaining shareholders to retain control of the business.
Business Loan Insurance – A life insurance policy with/without critical illness cover designed to provide the necessary funds to pay off outstanding business debts in the event of an insured guarantor’s death or, if selected, critical illness.