The key to a successful business is to ensure financial security in the occurrence of unexpected events. This can include the loss or serious injury or illness to key persons, which can cause a sense of uncertainty and instability to the business and its people.

A business life insurance policy (including Total and permanent disability and critical illness) can be particularly important for business owners as it provides financial security in the event of an unforeseen circumstance, ensuring your company can operate with confidence without the individual present.

To safeguard the best interests of your company, business owners should consider a business life insurance policy. At PSC Life, we aim to provide our clients with peace of mind. We protect business owners, business partnerships and families through a range of different types of life insurance covers suited to your business and personal requirements.

Types of Business Life Insurance

Key Person Insurance

Every company has invaluable employees they’d like to keep forever. Unfortunately, sometimes life circumstances such as injury or illness takes them away earlier than expected. Just as it is prudent to insure business assets against loss, it is also prudent to insure specialists or skilled people who contribute significantly to the ongoing success of the business. Key person insurance protects your business by not leaving it financially vulnerable if key employees were to suffer an injury or illness or pass away, by providing a timely injection of funds to minimise the financial impact to your business.

Who is a key person? A key person may be a business owner, partner, director, sales person, or key employee that generates significant profits. A key person is also someone whose sudden absence from management or day to day operations could cause financial loss to the business. If you are in a partnership or dun a small to medium-sized company, there may be other key people who may need to be considered. In addition, there will be employees whose skill set gives the business a competitive advantage. These employees may last be considered key people. Ideally, all key people identified should be covered, according to the scale and current risk status of your business.

Buy/Sell Agreements –

Business succession planning – Whether your business is structured through a partnership, company or trust, few have effective mechanisms in place for the transfer of equity and/or control if something should happen to one of the owners. If you have equity in a business you own with other people, you should consider establishing a buy/sell agreement funded by life insurance. A buy/sell agreement is a legal contract that outlines the details of how the ownership of the business will be managed on the death or disablement of a partner or a shareholder. This provides certainty the future ownership and operation of the business for the owners.

Have you considered what might happen to the control and future ownership of the business if one of the partners or shareholders should die, become seriously disabled or have a crisis event? What if you want to exit the business to pursue other interests but want to ensure you will receive a fair price for your share of the company?

There are two key issues that you need to address in this situation:

  • The legal transfer of control and ownership of the business
  • The way that the transfer of the business will be funded

A buy/sell agreement outlines how these two issues will be dealt with. Think of the agreement as a ‘business will’. Without an agreement surviving owners have to negotiate with the spouse or other beneficiaries to buy out their share of the business. Funds may not be available, the value of the business may be under contention, and beneficiaries may be forced to take whatever is on offer.

Understanding Your Business Life Insurance Needs

To choose the most appropriate form of business life insurance, you must initially understand your specific insurance needs. It is important to define your requirements based on various factors such as:

  1. Business Type
    Different businesses require different types of insurance coverage. Whether you’re a sole proprietorship, a partnership, a corporation, or a small business, each entity has its distinct risks and requirements. It is important to consider the full range of business activities that you carry out so you can align your unique needs with appropriate coverage.
    For instance, a sole trader, reliant on a key individual’s presence for smooth operations, may opt for key person insurance. Meanwhile, corporations with multiple owners or shareholders might seek comprehensive protection via buy/sell insurance to ensure seamless transitions during unforeseen events.
    Identifying your business type allows for a considered approach in acquiring insurance that comprehensively safeguards your specific operations, assets, and personnel.
  2. Business Risks Around an Individual
    Business risk encompasses the potential threats and uncertainties that can impact the success, operations, and financial stability of a company due to the health of a key individual.
    Your business insurance cover should adequately protect your business from potential threats to the key individuals within the business. Conducting a risk assessment that takes into account the downside risk of losing key people within your business will help determine the insurance covers that will be most effective in navigating challenges, capitalising on opportunities, and fortifying against potential disruptions.

Factors to Consider When Choosing a Business Life Insurance Strategy

Choosing the most appropriate business life insurance strategy that may or may not include insurance has an impact on the financial security and continuity of your business. With numerous options available, it’s essential to carefully evaluate various factors to ensure that the strategy you choose aligns with your company’s unique needs and objectives and financial position.

The following are some of the key considerations to keep in mind when taking advice around a business life insurance policy.

Insurance Details

Insurance details are the blueprint of your insurance policy, outlining precisely what is and isn’t protected. Delving into these specifics is crucial to comprehend the extent of your coverage. Knowing the inclusions and exclusions helps prevent surprises during claims and ensures you’re adequately protected in various scenarios.

Understanding the finer points of your policy gives you the confidence to navigate unforeseen circumstances without the fear of being underinsured. Regularly reviewing and familiarising yourself with these details ensures that your policy remains aligned with your evolving needs, providing a safety net that you can rely on when it matters most.

Insurance Cost

While aiming for affordability, it’s equally essential to ensure that the Insurance meets your specific needs. Insurance covers costs vary depending on a number of factors. Research shows that those who don’t seek professional advice to determine their levels of cover have lower levels of insurance cover and take on greater risk unknowingly than advised clients.

Evaluating the balance between cost and coverage involves considering various factors such as premiums, and the scope of protection offered. Your life adviser invests time in comparing different benefits and quotes from different providers, seeking not just the most cost-effective option but one that offers a comprehensive shield to your unique circumstances. This approach ensures you’re not just getting a good deal but also securing robust protection against potential risks.

Additionally, it is important to anticipate potential shifts in premium costs over time and ensure they align with your business’s financial plans.

Additional Coverage

Business owners and key people should consider other insurance needs that often extend beyond the standard protection, catering to specific needs or unexpected situations that might arise in your business or personal life. This additional insurance can significantly enhance the standard coverage by addressing specific needs and circumstances that are unique to your business and the individual’s personal situation.

Conduct a thorough assessment of your business’s unique needs and potential risks to identify specific circumstances where additional insurance could offer substantial value. By actively aligning your business’s needs and the available insurance options, you can ensure you choose a business life insurance policy that truly protects your business and the individuals within it.

Policy Duration and Renewability

This aspect relates to how long you want the insurance protection to be in effect. Understanding the duration of coverage and the terms for renewing the policy ensures continuity in protection.

Generally life insurance policies are guaranteed renewable. Ensuring uninterrupted coverage and in certain circumstances allow increases to that take into account business growth as your needs evolve. It’s essential to review these details carefully to avoid gaps in coverage and maintain comprehensive protection over time.

Partner with Business Life Insurance Specialists

If you are looking for a business life insurance policy that aligns with your unique business needs, don’t hesitate to get in touch with the team at PSC Life. With our comprehensive experience in the field and a commitment to delivering quality insurance solutions to our clients, we can become your trusted partner in securing the financial future of your business and those who depend on it.

Our dedicated team will guide you through the intricacies of business life insurance, providing the information you need to make informed decisions that provide peace of mind and financial stability. Contact us today if you have any queries or would like to further guidance on choosing the right business life insurance policy for you.