Business Owners: Make sure your business protects You, Your Family & Itself
Most businesses will prioritize its insurance policies as an important step to protect the business against potential financial risks and liabilities. Business insurance provides peace of mind, minimize financial loss, meets legal requirements, and improves business credibility. However, while business continuity will always be a top priority, Eolas Money’s Jim Stapleton outlines the various personal protection plans a business should have in place to protect its owners, their families, and the business itself.
Protecting the Owners & Key Employees:
- Executive Income Protection – Protecting your most important financial asset, your income, should you be unable to work due to an accident, disability or diagnosis of a serious illness, is top priority for all business owners. Thankfully a company can guarantee the long-term salary of its owners and/or key employees by commencing an Income Protection plan which will provide a maximum payment of 75% of your pre-disability salary until you are able to return to work, until your normal retirement age or your death – the earlier of these events.
Income Protection is a non-BIK benefit and your company can claim the full cost of this protection as a tax-deductible trading expense. Jim stated “insurance company Aviva recently announced their 2022 claims statistics, and they paid just over €48 million to 2,000 new and existing income protection claimants last year. 56% of claimants were women with an average annual benefit of €34,500, while men received a higher average annual benefit of €51,000”. Income protection is ultimately designed to provide financial security for claimants and help cover living expenses, mortgage payments, childcare, etc. so you can focus on your recovery. Jim also stated that “income protection also removes the financial burden from the company to continue paying an income to the employee who is unable to work due to illness.”
Protecting Your Family:
- Death in Service: In the event of your untimely death, your company can insure you for a maximum of 4 times your salary which is payable to your family as a tax-free payment. Again, this is a non-BIK benefit and your company can claim the full cost of this protection as a trading expense. Jim stated that an employer can insure a multiple of salary far greater than 4 times but any excess over 4 times will be used to provide taxable income for your spouse or estate.
- Private Health Insurance: If you currently pay for private health insurance (VHI, LAYA Healthcare, Irish Life Health) from your personal bank account, Jim states that the cost of this insurance is more efficient – despite the BIK – if your company pays the gross premium for you and your family. Therefore, Jim advises that private health insurance should be paid for by the business and not by the business owners themselves.
- Additional Death & Living Benefits: Providing an additional cash lump sum to your family upon a premature death, or providing a living benefit cash lump sum upon if you are diagnosed with a serious illness, can provide the additional funds required to ensure you and your family can maintain your long term standard of living. These benefits help to pay for future expenses such as education, weddings or home deposits. While most families will pay for such life assurance and protection plans from net income, a business can pay these premiums but treated as a BIK resulting in a cost saving for the family finances.
Protecting Your Business:
- Shareholder Protection: Sometimes a business exit may not be planned, and this is certainly the case when it comes to the premature death of a shareholder. In addition to the personal tragedy for all concerned, Jim says that the death of a shareholder may cause major problems for the surviving shareholders and possibly for the family of the deceased shareholder. Jim states that from his experience, “the remaining shareholders may face difficulties such as integrating a new shareholder into the business, potential loss of control and the possible inability to buy out the estate of the new shareholder”
When talking to business owners, Jim emphasises the importance of discussing how the business will deal with the premature death or incapacity of a shareholder. In most instances, Jim states “that remaining shareholders tend to prefer to retain control of their business rather than shares passing into a deceased shareholders estate”. Jim continues that “via open discussion and proper planning via a share buy-back agreement and specific share buy-back insurance, this can help eliminate futures difficulties for all parties upon the premature death of a shareholder”.
- Keyperson Insurance: Keyperson insurance is important for any business as it provides financial cover if a key person in the business dies or suffers from a serious illness or disability and cannot continue working within the business. Keyperson insurance can be used to cover any outstanding loans owed by the business or personally guaranteed by the owners, paying any temporary salaries or paying any recruitment costs. If losing a key person means lost profits, keyman insurance will help cover those costs until your business has recovered.
Jim Stapleton is a Certified Financial Planner and co-director of Eolas Money, a Financial Planning practice based in Clonmel, Co. Tipperary. To chat with Jim, contact him directly at email@example.com / 087 2924131 or visit www.eolasmoney.ie
This article is provided for general information purposes only and does not amount to financial advice. While every care has been taken in the preparation of the information, we advise you seek professional advice before making any personal financial planning decision. Eolas Money Management Limited, T/A Eolas Money is regulated by the Central Bank of Ireland.