Business Liabilities Protection

The object of business liabilities protection is to ensure that in the event of the death or disability of someone who is vital to the business — usually the owner – there will be sufficient money to repay specific debts.

At such a time, a substantial injection of cash may be the only way to maintain the confidence of creditors and investors in the business.

The potential problems

Among the problems that may arise on the death or disability of the owner of a business are:

  • a loss of soles or income that makes it difficult to service existing debts
  • the possibility that any existing debts would need to be repaid immediately
  • reduced creditworthiness of the business making it difficult or impossible to rearrange or reschedule its liabilities

The solution

In most cases, the only practical solution is to insure the individual or people whose contribution to the business is vital to ensuring that the loan is repaid. Life assurance and/or critical illness insurance is virtually the only way to ensure that a substantial sum of money will be available on death or disability, whether this occurs years in the future or the day after the policy is taken out.

Since the extent of the business’s liabilities could change substantially from year to year, it is especially important that the level and type of cover are kept under constant review.

Calculating how much cover is needed

The level of cover should be based on the assumption that all debts would need to be repaid immediately on the death or disability of the owner(s) of the business.

Different types of debt

These debts may be in the farm of:

  • interest only loans
  • reducing loans
  • overdrafts
  • credit cards
  • other loans such as family loans to the business
  • directors’ loans or partnership accounts (if not already allowed for under Director Share Purchase/Partnership Protection)

Different types of cover

These debts are likely to be of different amounts and be repayable over different terms. Because of this it may be necessary to take out more than one policy to provide the right level and type of cover at any given moment.

Existing policies

Some of the debts may also be protected by existing policies. These may be designed to repay the loan in full on death or disability or, perhaps, to cover the monthly repayments in the event of shorter term illness.

Existing policies will be taken into account before recommending the level of additional cover that may be required now.

The amount of the shortfall shown is only a guide and is based on the information you have provided and the assumptions detailed above.