Protecting people in your business

A guide to the financial protection for the people that make your business a success.

The old adage that a business is only as good as its employees is an important one to remember when it comes to insurance.

A firm’s workforce is the most important investment it will make and choosing the right package of insurance is a crucial way of protecting that investment. Changes to your workforce can have dramatic effects on a business’ ability to operate, from removing key expertise to inadvertently damaging important relationships.

A tailored insurance policy will offer both the wider business and the individual employees financial protection in the face of unforeseen occurrences.

Protecting your operations

The first strand is to ensure that the organisation can maintain its operations in the face of major changes to its workforce.

Key person insurance

While your team as a whole is important, there may be one individual who is a particularly important cog in the machine. This person may be the creative, organisational or motivational centre of your operations or may have a privileged relationship with your key clients.

Either way, losing them because of death or critical illness could have major effects on your business’ ability to generate income. Key person insurance is a mix of life assurance, critical illness and income protection that aims to allow a business to continue trading in a period of financial pressure and uncertainty.

Key person insurance can provide cover for:

• loss of profits over the period of time it takes to find and fully integrate a replacement
• recruitment and training costs
• income paid to the individual if they cannot work due to critical illness or injury (plus the costs of temporarily replacing them).

Identifying key persons

Each business has a unique mix of people and the fulcrum could be anyone. Some people come to have more importance then their job title would suggest while others have a higher level of technical understanding than the rest of the workforce.

Some examples of potential key persons:

• a sales person who has forged successful relationships with clients
• a technical expert
• directors or managers
• the founder (who may be the main source of goodwill or the most competent member of the team).

Talk to FAC Group about your workforce today on 01726 814935

Shareholder protection

The death of a shareholder can have wide-ranging effects, potentially impacting both the financial health of the business as well as the deceased’s family.

The deceased’s surviving family will become entitled to their shares and while they could step into their vacant position, they may want to sell their shares. It may also be in the remaining shareholders’ interest to buy out the deceased’s family in order to retain a degree of stability.

Shareholder protection insurance policies can provide the money to buy these shares. There are 3 main types of shareholder protection:

• life of another – 2 shareholders apply for a policy on the life of the other
• company share purchase – the company itself purchases the shares of the deceased
• own life – each shareholder takes out their own policy that is then held under a trust.

There are a number of potential benefits to this kind of insurance:

• gives the promise of stability to a business plan
• guarantees support for the family of the deceased
• can also cover critical illness.

FAC Group can provide advice on your ideal cover. Talk to FAC Group today on 01726 814935

Protecting your employees

The second strand of insuring your workforce is offering your employees various kinds of insurance policies as part of a larger package of benefits.

Income protection

For most people, losing the ability to earn a wage for an extended period of time is a daunting prospect. Without regular income the costs of living can quickly become overwhelming.

Income protection will provide payouts to those who are unable to work due to illness or injury. Policies may be long-term, covering a person until they retire or return to work, or short-term. Redundancy is not covered by this kind of policy.

Income protection will pay out a percentage of your earnings, usually 50% to 70%, and these payments are tax-free. There are also usually deferral periods between when the claim is made and the benefits are paid, with longer deferrals usually resulting in reduced premiums.

Critical illness

Whereas income protection provides ongoing payments, critical illness insurance pays a tax-free lump sum to people diagnosed with specific medical conditions.

The exact medical conditions that are covered differ between providers, but the lump sum will always be paid out directly to the employee in question. They are then free to choose how the money is used.

Employers will receive corporation tax relief on the premiums they pay. Class 1A national insurance contributions will still be liable.

Private medical insurance

These schemes will allow your employees to be reimbursed for some or all of the costs of private medical treatment.

The specifics of what will be covered will differ between providers, but the following are usually covered:

• inpatient tests
• surgery
• medical accommodation and nursing care
• some kinds of outpatient activities such as tests.

Group life insurance

Also known by the slightly more solemn ‘death in service benefit’ this is a kind of term insurance that will pay out to an employee’s family should they die.

The payout will be in the form of a lump sum that is based on a multiple of the deceased’s salary. This sum will be tax-free unless it exceeds the lifetime tax-free allowance.

The employer pays the premiums and agrees the level of cover. Group policies cover all employees at the same time.

Talk to an FAC Group Independent Financial Adviser about your benefits package today. Call us on 01726 814935

Choosing the right cover for your business

Every business a unique constellation of personalities, skills and experiences and there is no one-size-fits-all approach to protection.

To accurately work out the level and types of cover you are going to need, make sure to consider the following:

Analyse your threats

Any plan should be rooted in careful and thorough analysis. Conducting a SWOT (strengths, weaknesses, opportunities and threats) analysis will show you the weakest points in your business.

Which teams or employees would cause the most disruption or harm if something should happen to them? Are these people client facing or more important internally?

Don’t over insure

Being prepared is always good, but being overly cautious may mean that you limit yourself in other areas. If you are paying expensive premiums, you may have tied up resources that could be better spent on internal training, marketing or product development.

Our expert team offer independent financial advice and can help you construct the right protection strategy. Call FAC Group on 01726 814935

Important information

The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future.

 

This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation.

 

Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.