There are a number of factors that could impact businesses negatively as a result of the financial risk that they pose to the directors and the business itself. These risks can easily be managed through business assurance that provides liquidity and continuity. Here are few examples and solutions to manage these risks and provide sufficient provisions.
- Buy & Sell Agreement Policies:
A buy-and-sell agreement is an agreement between co-owners of a business, offering certainty of action in the event of death (or disablement) of a co-owner/ shareholder. A buy and sell agreement includes:
– Provision for cash for remaining owners to buy the deceased or disabled co-owner’s share of business
– The right to buy the interest/ share from the executor of the estate in the event of death.
- Loan Redemption/Business Continuity:
The business takes out a policy on the life of the co-owner who signed surety, i.e. it is an employer-owned policy. The sum assured is equal to the outstanding balance of the loan. In the event of death, the policy pays out to the business so that it can then settle the loan. Disability benefits are also recommended.
- Credit Loan:
The business takes out a policy on the life of the co-owner who lent money to the business. In the event of death, the employer-owned policy pays out to the business, which can then settle the loan. Disability benefits are also recommended.
- Debit Loan:
The person who borrowed money from the business takes out a policy on his own life for the value of the loan. This is therefore not an employer-owned policy. The co-owner takes out a personal policy and pays premiums on the policy. In the event of death, the policy proceeds are used to settle the loan. Disability benefits are also recommended.
- Keyperson Policies:
Take out a long-term insurance policy to cover the financial impact of losses following the death or disablement of a key person in the business.
Ruvan J Grobler