Running a business means exposing yourself to a certain amount of risk. You need safety nets in place to cushion yourself from the impact if or when problems occur. Although risk is not something you can be avoided, it can be mitigated with proper planning and insurance coverage.
By looking at the different types of solutions available to manage risk, you can better understand how insurance can protect your business from serious problems.
#1: Trade Credit Insurance and Political Risk Insurance
Trade Credit Insurance and Political Risk Insurance protect the profitability and the balance sheet of a business against unforeseen events such as death or bankruptcy of customers, defaults on payments, and unexpected export or import cancellations preventing the completion of a sale.
In essence, the insurance company will compensate the business for any amount of bad debts that may arise. The quantum of loss compensated by the insurance company is the actual bad debts less any deductible bad debts retained by the business.
#2: Loss of Keyman Insurance
Loss Of Keyman Insurance compensates the company for the loss of profit arising from death or total permanent disability of the keyman.
The insurance proceeds will provide financial cushion for the company to buy time as they look for replacement. It will also help to assure the stakeholders that the company remain stable.
#3: Credit Protection Insurance
The provision of credit facilities by a financial institution often has directors of the company acting as guarantors in their personal capacity for the credit facility.
Credit Protection Insurance discharges the responsibility of the guarantor in the event of claims against his personal estate. It also helps to settle debts, thus discharging the obligations of the guarantor and ensuring the main advantage of such an incorporation – limited liability.
#4: Share Buyback Insurance
Share Buyback Insurance provides the finances required for the purpose of buying back the shares of shareholders in the event of death, disability or retirement.This helps to prevent the admission of new shareholders into the business.
To note that the insurance merely provides the finance; there are other requirements to be met by a company when buying back its shares.
#5: Business Succession Insurance
Business Succession Insurance provides the funding required to execute a Buy-Sell Agreement between two or more persons.
The insurance provides the funds necessary for the purchaser to buy over the interests of another, should the insured event (death, disability or retirement) occur. The business interest may be the sole proprietorship, the partnership or the company. The interest can also be in other forms such as real property.
#6: Loss Of Key Employee Insurance
Loss Of Key Employee Insurance is a useful talent retention tool, to retain the services of key employees for a certain period of time or until their retirement, death or disability.
This form of insurance provides a lump sum to the employee’s family in the event of death or total permanent disability during the employment of the key employee. If the key employee remains/survives and works till an agreed period such as till retirement, the key employee is compensated with a lump sum or continued income for a fixed period or for life.
#7: Initial Investment Insurance
Initial Investment Insurance guarantees the return of initial capital contributed by the business owners upon occurrence of the insured event (death, total permanent disability or any other). The refund of the initial capital to the investor is independent of the business operation.
#8: Debtors Collection Insurance
Debtors Collection Insurance provides a lump sum compensation to cover bad debt that may arise in the event of death of a key person in the debtor’s business operation.
In the event of death or total permanent disability of the proprietor; or the partner in a partnership; or the major shareholder of a company, defaulting on debts is to be expected.
It should be noted that debtors are ones with unsecured debts and in the event of the death or total permanent disability of the major shareholder, the secured debtors would be the first to recover their debts, leaving behind little or nothing for the unsecured debtors.
Start the New Year right and review your risk exposure with us. We will be happy to walk you through a detailed guide on how you can mitigate your risks with better solutions.
