Businesses across many different sectors are slowly getting back on their feet as the economy continues to improve following the pandemic. This crisis has shown that in times of great challenge, your employees - their skills, knowledge and understanding of how your business ticks - are essential to keeping your business running.
So looking after your employees and your business go hand in hand. In a recent survey, 35% of businesses said one of the top three risks to their business would be an owner becoming critically ill and being unable to work. 52% said they would cease trading within one year were they to lose such a key person, and yet, surprisingly, only 18% had considered cover for the illness or death of a key person. (Source: Legal & General’s State of the Nation Report 2021). That’s very curious but the message of this article is: don’t be that business! There are two key groups of insurance that can help protect your business and employees from financial losses resulting from illness and death.
- Policies that protect your business against financial losses resulting from the death or illness of a key staff member or business partner, and
- Insurance that provides financial assistance to employees and their families in the event of their death or inability to work.
Protecting your business
When might I need shareholder/partnership protection insurance?
Shareholder or partnership protection cover insures a business against the loss of a shareholder or key business partner, which would likely leave the remaining business owners in a precarious position. With limited companies or partnerships, the main risk is that the deceased owner’s share in the business will be passed on to a family member, who may have little interest in taking over their role.
Essentially, shareholder or partnership protection insurance is a life insurance policy that pays out to the surviving business owners, based on an agreement that they will use the money to purchase the deceased’s outstanding shares in the business.
The cover you take out will depend on your business structure:
Shareholder protection is designed for limited companies, with the life insurance taken out on the lives of the company’s shareholders.
Partnership protection is designed for partnerships and limited liability partnerships, with the life insurance taken out on the lives of the business partners.
The policy might also include critical illness cover, in the event that a partner or shareholder does not wish to continue their involvement in running the business following their treatment or recovery from a serious illness.
Is key person insurance appropriate for my business?
Key person insurance protects businesses against the financial losses incurred if a ‘key’ employee becomes ill or dies while working for the company. This could be a CEO, business partner or senior employee considered essential to the successful running of the business. A payout from this kind of insurance can keep a business trading while recruiting for a replacement or undergoing reorganisation.
Some types of business insurance, such as employers’ liability, are legally required to run a business. Key person insurance is not one of them, but the loss of a key employee could affect the business in many ways.
Clients may react negatively or lose confidence in the business, shareholder confidence could plummet, and the skill, knowledge and experience of the key employee may be difficult, or even impossible, to replace.
Particularly for small businesses, losing a director or head of department could result in the company’s collapse, which is why the financial assistance provided by key person insurance could prove to be a lifeline.
Protecting your employees
How do my employees benefit from death in service insurance?
Also known as relevant life assurance, death in service is a type of insurance that pays out a tax-free lump sum to an employee’s beneficiaries if they die whilst working for your company. They don’t have to be at work or performing a work-related activity to receive the benefit; they simply have to be on the payroll of your company when they die or are diagnosed with a terminal illness.
This type of insurance is the second most valued employment benefit after private medical insurance, as can help your employee’s beneficiaries with costs such as funeral arrangements and living expenses at a very difficult time. The lump sum paid out is usually between two and four times the employee’s basic salary.
How will group private medical insurance benefit my business?
As mentioned above, group private medical insurance is one of the most popular employee benefits a business can offer, and provides your employees (and often their families) with access to private healthcare services.
While it is one of the more expensive employee benefits, private healthcare can offer immeasurable advantages –not only to your employees, but to you as a business. Employees will not be forced to take days off to access healthcare appointments, as private facilities usually offer appointments out of hours. They won’t face lengthy waits for appointments or treatment, so they can get better sooner and return to work more quickly.
The Coronavirus crisis has made us all too aware of the strain and pressure under which the NHS has been placed - there is now a huge backlog of patients waiting for treatments and routine surgical procedures. Offering your employees access to private healthcare is therefore a bigger draw than ever and could greatly help you to attract and retain the best talent.
Is permanent health insurance a good option to protect my employees?
Arranging permanent health insurance (or PHI) on behalf of your employees provides protection for them in the event of an injury or long-term illness that renders them unable to work.
PHI is another name for income protection insurance, but the premiums are paid by the business rather than the individual. The usual payout is between 50% and 75% of an employee’s full salary, potentially until they retire, and it can help your employees continue to pay for key outgoings such as mortgage and childcare costs until they are able to return to work. As such it is often considered by employees to be a more valuable benefit than private medical insurance.
The benefits usually start after a ‘waiting period’ of up to 52 weeks, typically after work-related sickness pay comes to an end.
The wording of PHI polices from different providers can vary greatly in terms of what exactly they cover, so it’s always best to check the fine print. As an employer, they can benefit you by incentivising your employee to return to work as soon as they are ready, in order to regain 100% of their salary.
What benefits your employees, benefits your business
Insuring your business and employees against financial loss, illness and death may be an added expense, but it could be the move that helps your business stay afloat during uncertain times. At Tees, we’re here to discuss your business insurance needs and advise you on which type of policy could deliver the greatest benefits to your organisation.
This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Tees is a trading name of Tees Financial Limited which is regulated and authorised by the Financial Conduct Authority. Registered number 211314.
Tees Financial Limited is registered in England and Wales. Registered number 4342506.
Chat to the Author, James Appleby
Managing Director at Tees Wealth, Bishop's Stortford officeMeet James