Every business owner who has been in the trenches knows that life is pretty unpredictable; it can throw all sorts of calamities your way and your business’s way too.
Business life insurance is not just one plan but a group of policies that protect your business, shareholders, and employees during financial difficulties.
Your business will sign up for the policy and pay for the premiums, but the payout will depend on the policy you have taken. For example, an employee and their family may receive the payout or the business may receive it.
Each business life insurance policy protects differently. For example, a plan can cover a shareholder or employee’s life or it can cover your business if you are unable to pay back a business loan you had taken.
In this quick guide, we explore the different business life policies you can take out to protect your business in times of need.
Table of Contents
Types Of Business Life Insurance
Business Loan Protection
A business loan protection insurance will give funds to repay a loan if the business is unable to repay. Some businesses take out loans while starting out and the key people who were designed to repay the loan find themselves unable to, sometimes due to financial difficulties, illness or death.
A business loan protection will cover most types of business loans such as:
- Personal guarantees
- Director’s loans
- Venture capital loans
- Commercial loans and mortgages
In order to set up a business loan protection plan, first, understand how liable each individual is towards paying the loan. According to loan terms, owners can be jointly liable, severally liable, or joint and severally liable.
Once these terms are clear, you can go ahead to set up a policy that involves all the members who will pay the loan.
Income Protection Plan
With income protection insurance, you provide yourself with a type of sick pay that is akin to that enjoyed by people in the corporate world. This means that if you ever become ill or incur a bad injury and are unable to run your business, as usual, this policy pays out some money that your loved ones can use as you recover.
You can learn more about this policy and even estimate how much cover you need using this income protection calculator by Caspian Insurance.
Individual shareholders can take out their own life policy, which insures them equivalent to their shares in the business. But they can also write it to benefit their fellow shareholders.
Shareholders can also enter into an agreement that the other shareholders can buy their shares from their families or representatives.
If a shareholder in your company is no longer able to work due to sickness or injury, shareholder protection insurance provides the remaining shareholders with funds to buy back their shares. This also applies if a shareholder passes on.
The sum insured will depend on the total capital needed by the remaining shareholders to buy the departing shareholder’s equity in the company.
The insurer will determine the amount your business will pay in premiums, based on the level of risk they feel they will be taking by covering your business.
Key Person Insurance
When certain employees are instrumental in the success of your business, you may decide to protect your business from the financial impact of losing such employees.
The funds paid out by the insurer when this happens can be used to recover business revenue lost as a result of losing the key person. They can also help to find and recruit a similarly qualified employee.
Your business can be impacted in several ways if you lose a key person. Customers could lose confidence in your company and even suppliers could start asking for their payment upfront because they now feel insecure without the key person.
The company takes out the policy on behalf of the key employee, pays for the premiums, and is the beneficiary for the insurance cover in case the key person is unable to work again.
Employee Insurance Benefits
Employee insurance benefits aim at attracting and retaining talented staff. A recent survey conducted on UK employees concluded that three-quarters of them receive no benefits from their company to take care of their health.
Another survey of UK employees shows that most of them value health insurance, life insurance, critical illness cover, and health cash plans.
By taking out life insurance for your employees, you can easily appeal to them and convince them to stay longer in your company. In a nutshell, employee benefits are one of the most effective ways to remain attractive to both existing employees and new recruits.
Choose The Right Business Life Insurance
Calamities happen to all businesses when least expected, but luckily there is a way to stay ahead of time. If you want to avoid financial dilemmas, business life insurance will cover shareholders, loan payments, key persons, and employee benefits.
Before choosing the right policy for your business, think of the financial difficulties it is likely to experience and the biggest financial impact these difficulties may have on your business.
With business life insurance properly set up, you can enjoy much-needed peace of mind knowing that unexpected financial difficulties will be taken care of.
