A Key Lesson

Issue 59

What has the Coronavirus Pandemic taught employers? This may seem like a strange question. Why am I picking on employers? Have we not all learned something about ourselves, our businesses, our jobs, family, friends etc.?

I am sure that we have all learned a lot but there is an area where financial advisers have struggled to make much inroad despite there being a clear need. That is the area of corporate protection.

Companies have always been aware of the need to insure their buildings and equipment but there generally has been a reluctance to insure the person behind the desk, even if the desk is insured. And yet the consequences of losing a key employee, through death or incapacity, are much greater.

If a business is deprived of knowledge or production ability the knock-on effect is loss of profit and viability. Contracts could be lost, and bank funding withdrawn. The potential consequences could be dire. So why have employers been reluctant to engage in protecting their businesses?

I believe that there is the “It will never happen to me” syndrome in play. The key employee is often, but not always, the business owner or owners. “Key-Man” insurance can cover death and or critical illness. The company takes out the insurance on the individual and receives the benefit if the insured event happens. For example, the key worker dies, and the company receives money which could bolster profits and fund finding a replacement employee or paying off a bank overdraft. We all know that banks love a reason to call in a loan and it usually comes at the worst possible time. This would be one of them so better to be prepared.

The premiums are generally tax allowable and great value, when you consider the nightmare consequences of losing a key worker. I would put shareholder protection in the same class here too. If you are a part owner of a SME and something happens to another shareholder, would you want to work with their spouse? Would you not prefer to have the money to buy them out and take control?

The widow or widower may not have any skills to bring to the table but would still be entitled to have a seat at the board and receive dividends. Even if you think that is ok, I can manage that. What if they remarry? Who then is entitled to sit at the table?

Shareholder protection ensures that the right people get the right amount of money at the right time. When linked with a suitable agreement, the widow or widower must sell to the remaining shareholders, if asked. Similarly, the remaining shareholders have the money to do so, and must purchase if requested.

Hopefully, when we finally do get clear of this dreadful disease, businesses will know who are the vital members of staff that makes the enterprise work and will value them more highly.

Businesses and shareholders need to be protected and we are here to help.

If you would like more information, or would like to discuss your own position, then please do not hesitate to contact me or my colleagues, David Hughes and Denise Graham.

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