It is often said that people are a company’s most valuable asset and therefore unexpected death or disability – to a partner or employee – can be a serious risk factor for any business owner, says Pieter Willem Moolman.
Years of dedication and hard work to build a sustainable business can be undone in a matter of seconds if your income generating “assets” are not protected.
Business assurance is a simple and affordable option to do just that. The two basic facets are “buy and sell” and “key person” insurances.
The first is an agreement entered into between owners by which they contractually bind one another to buy the other’s share at death or disability and, likewise, to sell to the surviving shareholder at death or disability. The selling price is also included.
The funding to make the sale possible is obtained through a life policy that offers sufficient cover for death or disability. The partners take out the policy on each other’s life to obtain the funds needed to affect the buy and sell.
Benefits include: heirs not having to worry about the business and receiving a pre-determined, fair price for their share; minimising delays in finalising an estate; surviving partners not having to worry about unwanted partners; and the business remaining in good standing with clients and creditors.
When properly set up and funded, a buy and sell agreement makes a smooth transition of ownership possible with minimum hassles to family and surviving partners.
Key person insurance, on the other hand, can be seen as an interim solution to recover losses when a valuable employee dies or become disabled.
If the business is mainly managed and driven by a certain individual, one can assume that a potential loss of income will occur when this person is no longer able to carry on with his or her duties.
By means of a company owned policy, the business obtains cash to assist while a substitution is sought or another is trained to take over these responsibilities.
This type of insurance reduces the monetary and psychological pressures on a business when star personnel are lost.
In any business, especially small to medium, the above is of extreme importance and can be the difference between surviving a crisis or not.
Therefore, make sure that your business assurance is up to date with a valid contract and revised regularly.
Pieter Willem Moolman is the owner of PWM Financial Management in Port Elizabeth. Visit www.pwmfb.co.za or phone 041 582 3034.