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A Sales Guide to Business Protection

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A Sales Guide to. Business Protection. Agenda. What is business assurance? ... THE BANK. Borrow the money from a Bank ... Who is missed most when on holiday ? ... – PowerPoint PPT presentation

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Title: A Sales Guide to Business Protection


1
A Sales Guide to Business Protection
2
Agenda
  • What is business assurance?
  • The issues
  • Key Person /Shareholder
  • Identifying key people
  • Whats in it for you.

3
Customers to look for.
  • High Net Worth
  • IHT Planning
  • Directors
  • Partners
  • Sole Traders
  • Accountants
  • Solicitors

4
The issues
  • Insurance Priorities Checklist
  • Which of the following would damage a company
    most?
  • Someone steals the computers
  • The photocopier blows up
  • One of the Directors suffers a heart attack
  • The courier lets them down
  • A window is broken by vandals
  • Shareholding director dies
  • A company car is stolen

5
The issues
  • Which events are your clients insured for?
  • No cover for the most damaging events

6
The issues
  • The ALIBI
  • It will never happen to me!

7
The issues
  • The Reality
  • Each year in the UK more than 600,000 people will
    suffer a Critical Illness (Source Money
    Marketing 7/03)
  • A man has a 1 in 4 chance of suffering a Critical
    Illness before retirement age. For a woman it is
    1 in 5 (Source ERC Frankona 3/03)

8
The issues
  • The Problem
  • How would a company trade if a key Director died
    or suffered a Critical Illness?
  • How would their family cope?

9
The issues
  • The Financial Implications
  • How do the remaining Shareholders find the money
    to buy out the shares of the ill Shareholder?
  • How financially secure will the ill Shareholder
    and their family be now?
  • How much will it cost the company to replace the
    Key Person?

10
The issues
  • The Financial Solutions
  • THE BANK
  • Borrow the money from a Bank
  • 100,000 at an interest rate of 8 would have an
    annual interest payable of 8,000
  • Based on a 52 week year and 40 hour week thats
  • 3.85 per hour

11
The issues
  • AND.
  • you would have to pay back the capital

12
The issues
  • The Financial Solutions
    INSURANCE
  • Male 45 next birthday non-smoker 100,000 sum
    assured
  • Life cover only 315.96 per annum or approx...
    15p per hour
  • Life or earlier critical illness 1088.40 per
    annum or approx... 52p per hour
  • Life or earlier critical illness, TPD - only
    1260 per annum or approx... 61p per hour
  • (based on 40 hour week for illustration purposes
    only)

13
The issues
  • The Financial Solutions
  • THE BANK
  • Borrow the money from a Bank
  • 100,000 at an interest rate of 8 would have an
    annual interest payable of 8,000
  • Based on a 52 week year and 40 hour week thats
  • 3.85 per hour

14
Business Assurance
  • Keyperson - Business Continuation
  • Purpose is to put proceeds into the hands of the
    business in the event of the death or critical
    illness of keyperson
  • Shareholder / partnership protection -
  • Business Succession
  • Intention is that the proceeds should be used to
    buy out the share of the deceased / critically
    ill shareholder / partner
  • Loan Protection
  • ALL SEPARATE ISSUES - ALL SEPARATE POLICIES

15
Key Person Cover
16
What percentage of clients has a Keyperson
package in place?
17
Sales Director
  • 40k pa basic
  • 30k pa bonus
  • BMW 750iL
  • BUPA
  • Non-contributory pension
  • Why?

18
Ideal Questions to Ask
  • Who is missed most when on holiday ?
  • Could the company replace their knowledge, skill
    or attributes?
  • Would it affect business expansion or
    development?
  • Would it result in loss of goodwill or hardening
    of supplier credit terms?
  • Would you miss their administration or management
    contribution
  • Would there be any employee relation
    consequences/
  • Replacement time, successors available ?
  • Be specific there are usually one or two key
    people at the most.

19
Business Assurance
  • Keyperson - Business Continuation
  • Purpose is to put proceeds into the hands of the
    business in the event of the death or critical
    illness of key person
  • This money is specifically to cover a loss of
    profit and to ensure the company can keep
    trading.

20
Maximum Sum Assured
  • 2 Common approaches
  • Multiple of profits
  • 2 x gross profit or 5 x net profit
  • Will be split if more than one person
  • Higher multiples possible for a rapidly expanding
    business
  • Multiple of salary
  • Up to 10 times gross salary
  • Disadvantage salary may not be an indication of
    someones worth
  • These are maximums, each sum assured much be
    justified, show your workings.

21
Writing the Policy
  • Ltd Companies - Limited Liability Partnerships
  • Life of another - Company owns the policy
  • Partnerships (except Scotland)
  • Business is not a separate legal entity
  • Usually partners propose on own life and place
    under trust
  • Remaining partners can then introduce the funds
    into the business
  • Personal Cover

22
Key person - the tax position
  • General rule
  • Tax relief on premiums taxable proceeds
  • No tax relief on premiums tax free proceeds
  • Cannot pick and choose!
  • Which one is the best way ??
  • The Anderson principles

23
Anderson Principles
  • The 3 hurdles to clear for premium tax relief
  • Employer / employee relationship
  • less than 5 shareholder
  • not a partner or shareholder
  • Insurance solely to meet loss of profit
  • Must be Annual or Short term assurance
  • Maximum 5 yrs
  • 5 Year renewable acceptable
  • Confirm with local Tax Inspector

24
Points to note
  • Generally tax relief is difficult to get.
  • If tax relief is available policy proceed will be
    taxed whether claimed or not.
  • If tax relief - must gross up the sum assured to
    take tax into account. This will increase premium
    !!!
  • Accountants like tax relief and may assume this
    is the best way - IFAs need to work with
    accountants closely

25
Share Protection Insurance
26
Potential problems
  • The Family
  • The shares will probably be left to the family,
    who may have no aptitude for the business
  • Their only option may be to sell the shares.
  • Will the shares be certain to get a fair price?

27
Potential problems
  • The Company
  • Pressure due loss of colleague
  • New Shareholder - No aptitude for business
  • Remaining shareholders will want to regain
    control of lost shares
  • Will they have the money to buy them? Will they
    be forced to borrow? Will they be able to borrow?
  • Will the shares be OK remaining with the family?
  • Will they sell them to a competitor?

28
Setting up the Policies
  • Policies written so that the proceeds are put
    into the hands of the other directors.
  • The directors will then buy the shares to ensure
    they regain control of the company.
  • Ensure there is an agreement in place to make
    sure the shares and the money are exchanged.
  • Cross option agreement

29
Who is involved in Business Assurance
  • Accountants
  • Solicitors
  • IFAs

30
Business Assurance
  • Establishing the need is easy so
  • Why is more business not written

31
Why is there not more business written?
  • Problem !
  • Confusion
  • Too many forms
  • complexity
  • Financial Underwriting
  • Lack of interest
  • Solution
  • Categorise
  • simplify
  • understand basics
  • Clear guidelines
  • Create anxiety

32
Business Assurance
  • Create Justifiable anxiety
  • Have clear objectives
  • Highlight shortfalls in current arrangements (or
    lack of them)
  • Present a solution which would be adaptable if
    circumstances change

33
Three key steps to writing business policies..
  • What ?
  • Why ?
  • Who?

34
Fundamentals - Keep it Simple
  • IDENTIY WHAT TYPE OF BUSINESS STRUCTURE YOU ARE
    DEALING WITH.
  • IDENTIFY WHY THE PROCEEDS ARE REQUIRED
  • IDENTIFY WHO SHOULD RECEIVE THE PROCEEDS
  • Ensure protection is set up correctly, we can
    help on individual cases.

35
Whats in it for you
  • Higher premiums
  • average case is usually 500,000 sum assured
  • Higher commission
  • Multiple cases
  • Keyman shareholder protection

36
Whats in it for you
  • Adding value to your clients and professional
    connections
  • Working with high net worth clients.
  • Improved knowledge
  • Help on each case by experts at BUPA you do the
    fact find then give us a call.

37
Business ProtectionConclusion
  • The very nature of Business Protection is such
    that professionals should be working together -
    IFAs, accountants and solicitors
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