1 : 12 - Business Protection Flashcards
Be able to evaluate the current and future needs and priorities for financial protection: SME business protection needs – business loans, key person, partnership and shareholder protection
What are the 3 main categories of business protection cover?
- Loan protection insurance
- Key person cover
- Shareholder and partnership protection
What is Loan protection insurance?
This can be taken out against a business loan or overdraft to cover the business against the death or illness of someone on whom it is dependent for repaying the loan.
What is Key person cover?
This can provide a business with a cash injection in the event of a key employee dying or becoming too ill to make a contribution.
What is Shareholder and partnership protection?
When a key person is a director or a partner, there are also additional succession planning issues to be considered. There is the possibility that a sick or deceased person’s share of the business could pass to a dependant who is unable to contribute to the running of the business, which could cause considerable disruption.
It is therefore important to ensure that the remaining directors or partners can maintain control of the company by buying out a sick colleague’s share or buying out the share of a deceased co-director or partner, or one who has suffered a serious illness.
What are the 3 essential elements which must be in place for Shareholder and partnership protection?
- Will
- Legal agreement (cross option agreement)
- Life cover
What is a Cross option agreement?
Gives the option to the remaining partners or directors to buy the deceased’s interest from the beneficiaries, and giving the beneficiaries the option to sell the inherited shares.
Please note this must be an option, not an agreement, in order to keep the valuable IHT exemption of Business Property Relief (BPR) on the company shares. If either party exercises their option, the other party must comply.
What is Inflation protection cover?
An automatic increase of 15% added to the declared value to allow for inflation during the period of insurance. Sums insured are also automatically index-linked to make sure that the client has the right amount of cover at all times.
What is Average waiver cover?
The waiver of any rights for under-insurance in respect of any building which has had a valuation survey completed by a Royal Institution of Chartered Surveyors (RICS) approved valuer that is within three years of the date of loss.
What is Contract works cover?
Automatic cover for the temporary or permanent works executed or in the course of execution at the premises.
What is Legal expenses cover?
This protects a business against legal costs and expenses relating to employment disputes, contract disputes and tax investigations.
What is Crisis containment cover?
The reputation of a business is of vital performance to its continued success so, should there be any unfortunate event causing significant personal injury or damage to property, the policy will pay the costs of securing the professional services of a public relations and/ or marketing organisation.
What is Website protection cover?
Website promotion and information is an invaluable asset to business performance and so in the event of malicious damage preventing access, loss of data or impact upon the reputation of the business, cover extends to include the cost of repair or replacement of the website and associated security improvements.
What is Force majeure cover?
This is French for greater force. Otherwise known as an act of God, it is present in insurance contracts to cover events that either party could not have reasonably expected when the contract was entered into, or events which are outside the control of either party.
