If your main income stream is protection sold off the back of a mortgage, the falling numbers of new buyers and reduced appetite for lending could be cause for concern. However, it’s easy to forget that there’s a world out there beyond house buyers! Why not start to look at other products that are less reliant on the mortgage market such as business protection? With an estimated 4.5 million businesses in the UK, this market could provide opportunities to generate additional income.
Over 10,000 UK businesses failed in the first half of this year, a 17.5 per cent increase compared to the same period in 2007 . With the credit crunch continuing to bite, senior managers will be increasingly looking at ways to minimise risks to their business, so now is a great time to present the case for business protection.
The financial impact following the death or serious illness of key individuals can put a business at risk. These events often occur when least expected and can cause loss of profit, interruption to cash flow, disruptions to loan repayment and changes in shareholder control. In some instances the financial burden can be so great that the business is unable to continue.
Business protection in the form of life assurance can help businesses protect themselves against these eventualities and help ensure the continuation of the business. Such plans are relatively simple to effect and can be a cost–effective and tax-efficient way for the company to help safeguard its future. There are three main areas business protection plans cover – partnership or shareholder protection, keyperson protection and business loan protection.
Partnership/shareholder protection
A partnership can be an effective method of pooling resources and skills to the financial advantage of all concerned. However, it brings with it responsibilities and the possibility of financial burden, especially when one of the partners dies or becomes incapacitated. For a partner, his share in the business is likely to be his greatest financial asset so he needs to take steps to protect it, not only for the benefit of his family but also for the benefit of the other partners in order to help ensure the continuation of the business.
Business protection plans, based on a suitable legal agreement, can provide a simple and tax-efficient way to protect the interests of partners and shareholders.
Keyperson protection
Most businesses have an individual who is key to the success and profitability of the business, a ‘keyperson’. Many businesses would be severely affected if this person were to die suddenly, leading to problems such as a loss of confidence in the company, withdrawal of credit facilities or the need to train or recruit a replacement. In extreme circumstances, it could even lead to the bankruptcy of the company.
Keyperson protection can provide funds to help your clients business cover the financial impact of the death or serious illness of their keyperson.
Business loan protection
There are many reasons why a business may require cash, in the form of a loan – to buy stock, finance the cost of new equipment, or recruit a new sales team for example. Where a business has obtained a loan, it must consider not only how to meet any ongoing repayments but also how to finance full repayment should the lender call in the loan prematurely. A commercial lender will often make a business loan subject to repayment on the death of a certain, often key individual. Alternatively, if finance has come from a director’s loan account, and the director were to die, then their estate may demand repayment of the outstanding loan.
Business loan protection can provide a business with a cash sum that can be used to help repay a loan on the death or, if required, earlier serious illness of a specific individual.
Arranging business protection
Many advisers perceive business protection as a difficult area to operate in and as a result often steer well clear. It’s perceived as a complicated sale because of the high levels of sums assured involved and the apparent complexity of underwriting. In reality, this is not the case and the principles are broadly similar to other types of protection.
Many providers have taken steps to help advisers through the process, to make it as easy as possible to submit cases. Some provide dedicated business protection teams, giving you direct access to ‘high net worth’ underwriters. These underwriters can provide practical information on areas such as how best to present financial information and how to package an application. Some even provide pre-application assistance so that you can discuss issues such as medical disclosure, underwriting limits and tax implications before you have even met your client.
With businesses under increased pressure as a result of the credit crunch, it’s now more important than ever to have financial protection. Your clients would be wise to financially prepare and enjoy the peace of mind that business protection can provide.
By tapping into the business protection market, you’ll not only be able to build better relationships with business clients and provide valuable advice in the current climate, but will also benefit from increased earnings. By diversifying into this market, the benefits to be had for both you and your clients are clear.
