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Insuring the human

30 November 2017

Business owners often say their most valuable assets are made of flesh and blood yet when it comes to insurance many don’t put their money where their mouth is.

None ever question the need to insure their plant and machinery but plenty fail to protect against the loss of key individuals.   

Indeed, according to the recently published fifth edition of Legal & General’s State of the Nation’s SME’s report, over half of businesses have no key person cover – which can help with the costs of coping with the death or incapacity of a key individual.  

The issue appears to be largely educational as the survey shows that 53% of businesses think they would cease trading within a year if they lost a key person to death or serious illness. Yet 32% had never even considered key person cover and 31% had not got round to it or looked into it.

It isn’t only the absence of senior directors that can bring a company to its knees. The loss of a top sales, accounts or payroll person can be just as devastating.

Consider, for example, the impact on a small business of the loss of the sole person responsible for running the monthly payroll. If they suddenly weren’t there tomorrow the employees may not get paid and the gap would need to be filled in the short term by hiring a replacement or outsourcing the function to a payroll company.  

Similar patterns are in evidence with regard to other areas of business protection such as loan protection or shareholder or partnership protection – which can enable the surviving partners or directors to buy out the share of a colleague who dies or becomes seriously ill. The Legal & General survey shows that over half of businesses have left no instructions in a will or special arrangements regarding shares.   

Part of the educational problem has resulted from the fact that, unlike Chase de Vere, most employee benefit consultants have not been geared up to advising on this area. 

We are talking about broadly the same life, critical illness and income protection products that are used in the employee benefits arena. However, when they are used for business protection purposes only authorised independent financial advisers (IFAs) are permitted to advise on them because they are effectively individual policies – but written in a way that the proceeds go to the business rather than to the policyholders or their next of kin.

Chase de Vere differs from many other major employee benefits consultants in that it also has an IFA arm, so we can help with all aspects of business protection.

Another problem has been that employers have traditionally viewed business protection as being too complex and time consuming. It certainly is a specialist area but we can handle all the complexity on your behalf and ensure the most appropriate covers are arranged cost-effectively and tax-efficiently.    

The importance of setting up everything correctly cannot be stressed highly enough. For example, we have come across cases in in recent months when the policy proceeds would have gone to the spouse rather than the business. We have also seen cases where policies have been written for longer than five years – when they could have enjoyed valuable tax relief if they had been written for up to five years.  

We can also greatly reduce the length of time the process takes by selecting insurers that we know have good service standards, obtaining most of the information financial underwriters are likely to require at our initial client appointment and by chivvying along medical underwriters and arranging a single medical examination to satisfy several different policies for the same individual.  

Additionally, we will continually review your arrangements, which is crucial. For example, we have recently witnessed the consequences of the unintended lapse of a business’s five year key person cover. Had the previous adviser acted in time the cover would still be in place but, unfortunately, the employee can no longer get critical illness cover due to a change in health.      

If you would like to find out more about how Chase de Vere can help you with key person cover, loan protection or shareholder or partnership protection then please do not hesitate to contact Chase de Vere on 0345 300 6256 or complete this simple form and we’ll call you.