Clear any outstanding debts e.g. overdraft, loans or commercial mortgages and eliminate financial pressure from creditors. Protection is vital to allow your business to recover quickly and minimise the impact should the worst happen.
The loss of a key person (you) can put a lot of pressure on the remaining owners. Apart from increased workloads and potential loss of profits, there may be the added burden of financial commitments such as outstanding business loans.
Lenders usually require this cover and you may have given personal guarantees - using your home as security. So there is the added need to make sure that your dependents are protected too.
You've worked hard to build your business. Make sure you protect it.
Have you made loans to the company, either by cash injection or by leaving salary, bonus or dividends in the business?
Known as director loan accounts, these become repayable to the estate if you die and therefore need to be included when calculating the amount of cover needed. In a partnership there may be similar loan accounts owed to individual partners and these need to be covered in the same way.
26% of owners aren't aware that their Director Loan Accounts need to be repaid on death.*
It makes sense to include the director's loan account when calculating critical illness cover too, so that if you suffer a critical illness, the company would be able to repay the loan and give you much needed personal financial security.
Ask yourself these questions:
- Do you have a Director/Partner's Loan Account for your business?
- Do you have a bank loan or commercial mortgage for your business?
- Have you provided a personal guarantee for such a business loan?
- Does your business have an overdraft or any other type of borrowing?
If the answer is yes to any of these questions, have you considered the implications of being unable to repay these debts during a difficult economic environment?
*Source: Legal & General's state of the nation's SMEs report (5th edition)