Business Protection Flashcards
What is business protection insurance, why is it important?
Business protection insurance aims to protect against potential losses as a result of illness or death of an employee.
It is important particuarly for SMEs as death or critical illness can mean bankruptcy.
What are the 4 different types of business protection insurance?
1) Key person protection
2) Shareholder protection
3) Loan Protection
4) Partnership Protection
What is key person protection
Insures against potential losses as a result of the death or impairment of a key person
Why might key person protection be needed?
Death or impairment could mean:
1) Projects miss deadlines
2) Hiring / Training Costs
3) Lose out on business
4) Lose credit facilities
all of these would impact profit / increase costs
How is key person protection set up?
Who owns the policy?
Set up under “another life basis”
Life assured is key person but policy holder is the business
What is needed to take out key person protection
An insurable interest
What is an important consideration when taking out key person protection, why?
The term
Employees may leave mid-way through a term
What type of term / premium is best for key person protection?
Renewable
What is shareholder protection
Ensures that sufficient capital is available to purchase the shares of a deceased shareholder without crippling the business
What do articles of incorporation usually stipulate re: death of a shareholder
Why does this not always work
If shareholders do not buy the shares, who might instead?
Shares of the deceased are first to be offered to other shareholders
The shareholders may not have the sufficient capital to finance the purchase.
Family of deceased are offered the shares in place of the shareholders
What issues arise from family members purchasing shares following death of a shareholders
1) Family may not have the required skills to help run the business
2) Family may want their money out of the business
3) Business may not want interference from family
How does shareholder protection remedy the issue of family members buying shares?
Ensures sufficient capital is available on death, in order to finance the purchase of shares.
maintains control and stability without putting a financial strain on the business.
What is partnership protection
Insurance in the case of death / impairment of a partner
Ensures shares remain in the business & no control is lost
Can also compensate family of deceased
similar to shareholder protection
What two ways does partnership protection usually work
in terms of how the policy is implemented?
1) Take out life assurance policies on one another
2) Take out joint life first death policy
What consideration needs to be given to life assurance policies for partnerships
The term, in case a partner leaves the partnership
What other things can business protection cover?
1) Property Damage
2) Loss of rent
3) Equiptment breakdown
What is employer’s liability insurance
covers an employer if an employee becomes injured or sick due to their work
Covers compensation claims
What is:
Public Liability Insurance
Product Liability
Public liability covers you if third parties injure themselves on your premises
Product liability covers harm done by your products
