Life – When Your Business Depends on It

When it comes to life insurance, most people associate it with the financial wellbeing of their family. But a good life cover policy is an invaluable tool when it comes to the succession planning of a business.  

Entrepreneurs invest their lives in building up their businesses, and in doing so, become indispensable to its operations. Should something happen to them, the business is at risk of not being financially able to continue. It is for this reason that a succession plan, underpinned by life cover, is vital to any organisation.  

Life cover ensures that the money is available to help the business through the loss of a key member of the team. Anthony Palmer, Carrick’s Group Commercial Director, explains that a life insurance pay-out ensures that the business continuum is always there. “Life insurance ensures that there is money available to the business. Money to pay salaries and creditors or to hire a suitable replacement. We don’t always know what is going to happen, so life cover gives security to the business, and allows it to operate relatively uninterrupted,” he says.   

Some of the considerations business owners need to make when it comes to succession planning include the age and size of the business, who needs to be insured, and what eventualities they are insuring against.  

Start-ups  

Start-up businesses are especially vulnerable to losing a key person. Often young businesses are very reliant on the founder/owner. A loss of this key person would be detrimental to the sustainability of the business, putting the owner’s family as well as employees and creditors at financial risk. Life cover would offer the necessary cashflow to see the business through a difficult transition and to ensure the business can keep its doors open until plan B can be implemented.   

Key persons  

The death of a key person in the business can have a significant financial impact on the business. By having cash available, the business and family are given a lifeline while they find a replacement or train someone else up into the position.   

Buy-sell agreements  

It is always advisable for partners in a business to have a buy-sell agreement in place should one of them pass away. This allows the business to buy the deceased partner’s shares. The transaction, however, can be expensive. Life cover on partners can ensure the business has this money available in the unfortunate event of a partner dying.   

Disability 

Disability can be as disastrous as death. Ensuring funds are available should someone be unable to work due to a disability is key, whether it is to sustain the business while they replace the person, or to buy them out. 

Living benefits  

Living benefits are the pay outs people get should they succumb to a dread disease like cancer, heart disease and stroke. Like death and disability, should the person not be able to fulfil their function in the business, having the money to buy them out is critical, not only for the business, but for the affected person and their family.  

Family financial security  

Often an entrepreneurial business is the only source of income for the families of entrepreneurs. Should something happen to the entrepreneur, their family’s financial security is at risk. Business owners need to plan on how their family’s financial wellbeing will be secured in the event of their death.   

When it comes to Africa’s high-net-worth business owners, Carrick offers a number of solutions to secure their business’s future in the form of high-value life cover. The cover will not only pay out a lump sum on the death of the insured person, but can also offer their business flexible terms around the payment of premiums. What sets the cover apart, however, is that it acts as an investment tool as well as life cover, meaning cash flow should never be a business concern, as a portion of the cover can be withdrawn in case of an emergency.  

As Palmer says, “Having money at the right time removes a lot of uncertainty in the business, meaning the business can go on.”