Is your business covered if a director were to die?

Adversity often makes us all reflect on the things in our lives which we have not got around to considering. That certainly seems to be the case as we find ourselves faced with a global pandemic.

As individuals, many clients have reflected on their personal circumstances; however many company owners are also considering their businesses. Perhaps because this period has provided the opportunity to reflect or, sadly, they have faced the reality of losing a colleague. 

We have had clients contacting us about their businesses and the discussions generally fall into “is your business in order if a Shareholder/Director were to die?”, think about these questions below, if not you will need to get this actioned.

1. Have you organised your Shareholder Agreement?
2. Have you got the funds to pay a deceased’s share of the business to their beneficiaries?
3. Would you want a third party becoming a director of your business following the loss of a fellow director?
4. How would your business cope financially?
5. Have you got a Business Continuity Plan?

Also, a fellow director is often a paid person in a business, therefore:

1. Could your business continue to trade without this person?
2. Would you have the cash flow to replace any loss of profit, or repay outstanding loans of individual directors including directors’ loans?

A case study, provided by Aegon, recorded that in 2013 a company identified that it needed business protection to cover its director (and owner of the company). It took out life cover including critical illness cover for this person. In 2015 the company director sadly died in a road traffic accident. 

The insurance company paid out a lump sum to the company. These funds gave the company time to consider its continuity planning.

In some cases, companies don’t fail in the short term due to loss of profit but because of a loss of cash.

The situation we have all found ourselves in has provided a period of reflection and businesses should consider whether they have the appropriate life protection in place to protect their business.

Most business owners/directors protect their business premises by taking out insurance, but often forget what would be their most important asset - themselves and key employees.

At Birkett Long, we assist you with the legal and financial arrangements with services from our solicitors and our financial planners who work together for the benefit of our clients.

If you would like to discuss these arrangements, please do not hesitate to contact me on 01206 217308 or nicola.ward@birkettlong.co.uk.