Apathy or action – can you really afford to ignore your business vulnerabilities?

closedThere is no question that business protection considerations are a hot topic right now.

In the last few weeks there have been several discussions launched on Linkedin asking what small businesses are neglecting in terms of business protection and whether or not business owners are sticking their head in the sand when it comes to business protection.

There is a massive gap in the business protection market among UK business owners and some of the recent statistics from Legal & General in support of the Every Business Matters campaign on Unbiased.co.uk are quite staggering but not unsurprising.

There are just too many businesses out there who have insufficient or no cover in place to allow operations to continue on the death or serious illness of a shareholder, partner or key person.

I don’t think it’s fair to say business owners are sticking their head in the sand with regards to this issue, many are well aware of the seriousness of this level of risk and the financial havoc death or critical illness can bring on firm.

The issue is perhaps lack of guidance and education. Directors, Partners and Key People are busy doing what they do best on a day to day basis, growing their companies, developing their brand and making the venture a profitable as possible.  Finding the time to discuss, consider and understand what their business protection needs are, is often a hard thing to do for no reason other than they are too busy doing other things.

Add to this, the general resistance amongst many advisers to sell business protection because they believe it is too complex or they don’t understand all the nuances of the cover and you have a great recipe for avoidance and apathy across the business sector.

I believe we have a responsibility to support business owners, to help them identify where their vulnerabilities lie and to explain the process to put the correct cover in place with the appropriate legal documentation.

It doesn’t have to be complicated or painful, taking the time to evaluate a business, identify key areas of risk and providing a solution is a tremendously rewarding exercise.

We have helped many businesses over the years to put the correct planning in place and time and again when the exercise is complete the owners reaffirm the process has given them a real peace of mind and sense of control.  They feel able to move on with the day to day development of the business safe in the knowledge that all their hard work to create a business with value is underpinned with the correct protection.

If you have any concerns with respect to your business or you would simply like more information on business protection then we would love to hear from you.

Take action and don’t let apathy expose your business to unnecessary risk!

Dr C.

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The (Transfer) Value of the Key Man

Alex_FergusonAs the tributes rightly fly in for Sir Alex Ferguson, the most successful manager of our time, consider his value to the business over the last 26 years.

Hindsight is wonderful and exact and few would have been able to put a monetary value on Sir Alex especially at the inauspicious start to his Man U career.

In an age when football players are valued in 10s of millions, its intriguing to think of what transfer value might have been placed on Ferguson at the beginning of his last season?

A single player might surely make a difference, but if RVP never played again for Manchester United, chances are the new manager will replace him with somebody as good, better?

Imagine the effect on the share price (and longer term value) of Man U Plc if Sir Alex had carked it anytime during the last 26 years?

I’m sure, as a sensible employer, Manchester United would have had him extremely well insured from a Keyman point of view…or maybe they didn’t.

Time to look at your own Sir Alex and his or her value to you business and make sure that if its not a gentle exit to retirement and more of a catastrophe that makes them suddenly not there any more, you’re financial well prepared for the consequences.

Please speak to us about our Transfer Value Keyman cover solutions before the next 26 years pass.

Roland Oliver

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Life cover, it’s about more than insurance

When it comes to protecting ourselves and our loved ones from the worst happening, whether it’s a critical illness or untimely death, we all know some sort of life cover or critical illness cover is required to ease the financial strain of these events.

Time and again couples and families are left feeling the financial and emotional pressure because the cover was never put in place. It was never the right time to look at it, they were always too busy, they didn’t think they could afford it, they didn’t see the need to buy insurance as it never gives anything back.

However, there is a shift in the industry now towards providing more than pure insurance as the customer wants to know what’s in it for them, what are the additional benefits and why should they have the cover in place.

Apart from providing peace of mind that your loved ones will be taken care off on your demise a handful of providers are now looking to enhance the benefits available to you while you live a healthy life and in fact they work hard to ensure you stay fit and healthy while saving money.

Pru Protect is a front runner with their Vitality and Vitality Plus schemes which allow their policy holders to follow a Vitality coverhealthier living programme which not only could add years to your life but reduce the need to claim for a critical illness. Their Vitality programme doesn’t just help clients stay healthy but rewards them for their efforts too by means of reducing the premium paid for the cover as they accrue Vitality points.

They also offer discounts with their health partners for half price health screening, discounts on Champneys spa breaks and even member deals with Cineworld, Vue, Legoland and Thorpe Park to name a few.

Pru Protect recognise that just selling insurance isn’t going to cut it in today’s climate and that everyone wants to know their money is being well spent with immediate benefits in return.

Bright Grey are also in on the act, offering a free Helping Hand service with their cover which is aimed at helping policy owners and their families cope with the trauma of loss or serious illness.helping hand pack

They offer a support service at a time when it is most needed whether its assigning a RED ARC nurse to help you come to terms with your illness, guiding you through the questions you need to ask a consultant or offering bereavement counselling for the family left behind.

They can help with getting you back on your feet with alternative therapies if conventional medicine isn’t the answer and provide rehabilitative support to get you back to work.

Just this morning I had a call from our contact at Aviva to let us know they have now launched their own RED ARC nurse service with their life and critical illness cover and in addition to this they also offer a free 2nd opinion on your medical diagnosis.

red arc assuredThere has never been a better time to review your protection or get something in place if you have been putting it off. It’s about more than just insurance these days and there are a range of additional enhancements and benefits at your finger tips so why not get in touch today to find out more.

If you’re still thinking it’s going to be too expensive then watch this space as I will be blogging again shortly to demonstrate the real cost of cover and how there is something for every budget.

Dr Claire Armstrong

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EU Gender Directive – 104 days to final deadline

A short while ago I blogged on the up and coming EU Gender Directive which will come into effect after 21st December 2012.

The deadline date is now fast approaching and we feel really there is no time like the present to shout again about these changes and the impact they will have on any cover you have in place or plan to do

Just as a reminder, from 21 December 2012, the EU Gender Directive means that men and women will be treated the same when it comes to insurance premiums.  Whilst also affecting car insurance and retirement annuities, the new European gender law will have significant repercussions for life, critical illness and income protection cover. The gender effect will result in most women having to pay more for life and critical illness – around 15%*, but less for income protection. Men, on the other hand might enjoy some reductions to the cost of life and critical illness cover, but pay more for income protection.

From January 2013, most life insurance companies will be required to pay more tax; raising more revenue for the Treasury, pushing up life insurance costs for insurers and ultimately their customers. Experts estimate this could increase costs by around 10%**, largely offsetting any wins from the gender changes.

The double whammy effect means that generally for both men and women the cost of protection is set to go up.

The extent of change will vary by provider, will differ by product class and be determined by the individual circumstances of the client. Added to this, we expect to witness a fair amount of re-pricing activity in early 2013 as providers attempt to get to grips with the new gender neutral world.

Liverpool Victoria have provided some useful figures which are based on their analysis of the entire market and some of the predictions made by key stakeholders and experts, and these are noted below to give you an idea of the potential impact this directive may have:

These statistics stand as a stark reminder that now is the time to act, particularly if you have cover on risk you want to review or increase or if you have been wavering on whether or not it’s the right time to look at applying for personal protection.

All applications submitted between now and the 20th December must be fully underwritten, accepted and on risk to avoid the new Directive and in our experience whilst most cases go through within 1-2 weeks some cases can take much longer depending on underwriting requirements and your personal circumstances.

Don’t fall foul of thinking there is still plenty of time, there are only 12 weeks to go until we are into December and we all know how quickly that will go!

We would strongly recommend if you want to review your cover or put new plans in place you should be taking action within the next 4 weeks to ensure you don’t miss out on current pricing.

Don’t delay any further get in touch for a protection review and ensure you’ve got the right cover for the right price.

Claire Armstrong

Sources: * HM Treasury, December 2011; ** Actuarial Profession, March 2012

***In some cases, women pay more than men

**** Adding together the estimates provided by LV=, June 2012 and Actuarial Profession, March 2012. The changes to costs will vary by individual, product and provider. They could be lower or higher than the average 16% indicated.

 

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EU Gender Directive

On 1 March 2011, the Court of Justice of the European Union (ECJ) published its ruling on the legality of Article 5(2) of the Gender Directive 2004. The ECJ has reached a decision that, with effect from 21 December 2012, the use of gender as a factor must not result in differences to individuals’ premiums and benefits for insurance and related financial services contracts.

Simply put the changes taking effect at the end of this year means that women are likely to have to pay more when taking out new life cover and critical illness cover. It could cost around 15%* more for your life cover if you wait to buy it after 21 December 2012 so why would you want to pay more when you can act now?

If you are even thinking twice about why you might need cover here’s a few questions to ask yourself:

• What financial support do you have in place if you had to stop working due to critical illness? What if you were unable to return to work?

• How would you cope if a partner or someone you depend on financially were to die suddenly or get a critical illness? How would they cope financially if anything happened to you?

• Could your family continue in the lifestyle they’re accustomed to without you and your income?

If you’re a stay at home mum, don’t underestimate your value either, recent statistics from Bright Grey show that the cost of paying someone to carry out the many tasks us mums do could be more than £30,000 per annum.

Consider then how your family would copy financially if you were to die or become too ill to keep things running, how much would be required for childcare if your partner had to manage on their own?

Having the right protection in place can provide peace of mind when it’s needed most and if we girls are going to have to pay more in future then there is no better time like the present to get the cover in place.

Here’s an example of the potential impact of a rise in premiums to come:

Female aged 39 – £90,000 of Decreasing Life and Critical Illness Cover over a period of 21 years **

No one likes having to pay for insurance so why pay more than necessary – act now and get in touch to find out how we can help you get the right cover at the right price.

Even if you already have cover now is the time to review it and ensure if you need to increase your sum assured or add more to your plan you can do it without paying more than required.

More next week on the changing face of life and critical illness cover and some new options we are now looking at.

 

Dr Claire Armstrong

 

*HM Treasury Consultation Document, December 2011

**Premiums are correct as of 29/03/12, supplied by Legal & General and are for illustrative purposes only. 15% increase has been assumed based on current pricing in relation to the changes to the EU Gender Directive with effect from 21/12/12. Your actual premium will depend on your individual circumstance and could be higher or lower than 15%

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Wealth Modelling – Income Protection

What would happen to you and your family if you became ill and were unable to work for some time?

We are able to tell you how this scenario might play out with our wealth modelling capabilities.

In the example below I will demonstrate how the Example family’s cash flow and liquid assets are affected. This particular Mr Example is the sole breadwinner for a family with three children. There are a multitude of different scenarios but this one allows me to illustrate the simulation effectively.

The details:

Mr and Mrs are 41 with three kids at primary age. Mr has a salary of £80,000, they have cash savings of £40,000, investments of £50,000, he has a pension fund of £50,000. They have a house worth £400,000 with a mortgage of £300,000. Annual expenses are £53,000 including extensive mortgage repayment. Various events such as university fees and expected wedding payments are scheduled into the plan.

The scenario:

Four years down the line Mr falls meaning he cannot work for two years.

From the cash flow chart we can see the savings and investments are called into action and dry up before the second year is out.

From the liquid assets chart we can see again the savings and investments drying up (orange) leaving the pension (brown) left and this cannot be touched. Note also the implication on retirement: liquid assets are £300,000 less than they are in the top chart at retirement age, and the ultimate effect at mortality is considerable.

Income protection cover typically pays up to 75% of your income in situations like this. Please consider your own situation and how your planning might be affected in the event you couldn’t work for a period of time.

This is one of the many scenarios we consider when producing a client’s wealth management plan. If you feel your planning would be seriously affected by an unexpected illness, then please contact us.

 

Malcolm Stewart

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Two Free Days

I listened to John Humphreys on Radio 4 yesterday quiz a medical expert on the recent pronouncement from MP’s on the idea of having two free days a week from alcohol.

It was clear that Mr Humphreys was desperately trying to justify his non-non-drinking days and it was great radio as the expert refused to sanction his habit without either party being specific!

Anyway, who is right and who is wrong is a matter of balance I guess.

What is evident is that as a nation we could really improve our diet, habits and exercise patterns significantly to deliver better overall health.

I’ve just come back from my local public gym and it was a classic early January visit – a smattering of recognisable regulars who were back doing their thing and about a 70% increase in January resolutionists a puffin’ and a pantin’.

I’m not going to talk them down as any attempt to change habits and improve health is good in my book.

I will say this: shiny silver trainers have no place in the gym.

Also what is it with the comfort blanket that is the sports-cap bottle?

It’s a fascinating item – it would appear to have magical powers that can render you invisible if you drink from it as you enter the gym.

I could go on and say that at least one of the treadmills was trying to understand why a bunch of local citizens had decided to go for a group run on one machine…

So what’s my point?

We’ve had a couple of underwriting decisions surprisingly go against clients and we are taking a much more in depth approach to understanding health and fitness issues as we create appropriate life, critical illness and income protection packages.

I’m encouraged by the likes of PruHealth’s Vitality program and the idea of discounts for improved health and lifestyle.

We still find clients reluctant to take out the full levels of cover that they really need.  With our total protection review, we discuss all aspects of their health and fitness to allow us to get the right cover, at the right levels with the right focus on long term health.

Whether its two days off the laughing juice or a total commitment to an improved lifestyle, having the right levels of protection is vital.

Speak to us about all your protection needs, and we can even help you get fit!

 

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Do I need a Business Will?

We’ve talked in recent weeks about the importance of considering business protection, identifying a need and considering your key man requirements.

We have also touched on Business Succession and it is with that in mind that we would ask – Do you have a business will?  You would be surprised when this is asked how often the answer can be – “I don’t need it!”

As part of our Wealth Management Plan offering for clients we ask if they have considered putting a will in place and if they have already written one, when it was last reviewed.

It would be remiss of us not to cover this and in a similar vein it is crucial to any business succession planning that a business will is in place to ensure shares in a business go to the right people on the demise of Directors or key shareholders.

We feel it is vital that a business Director or key shareholder considers if they died or became critically ill, where their business interest would go?

In the first instance a company’s Articles of Association will deal with the issue of transferring and selling shares.

A company’s Articles of Association form the basis of the company’s constitution. They’re commonly referred to as the internal rule book of the company. The articles are chosen by its members and are legally binding on the company and its members. A company’s articles are subject to the Companies Act 2006 and can’t contain rules that would cause the company or its directors to operate outside the law.

When a shareholder dies, their shares will form part of their estate and ultimately pass to their heirs under the terms of their will or the laws of intestacy where they haven’t made one.

You wouldn’t want to die and leave your personal wealth subject to the rules of intestacy so why take the risk with your business assets?

It is vital that firms understand and know what their Articles of Association say about how shares transfer.  All those likely to be affected by the death or critical illness of a shareholder need to know if the Articles enable the shareholders to do what they want with their shares should the worst happen.

If the articles are found to be lacking in terms of the preferred instructions then they can be amended by a Solicitor and a Business will can also be completed to ensure that everyone involved has the peace of mind that the value they have within a business will be protected and pass to their chosen heirs when the time comes.

If you are unsure about what you already have in place and want to revisit your existing arrangements we are happy to offer a second opinion service to look at your Articles and business will.

If you still need to put a business will in place then don’t hesitate any longer, let us look at your business and what is required and make the step to having everything reviewed and protected for the New Year.

Check in again next week where we will discuss in more detail how a business will can work in conjunction with a cross or double option agreement to ensure capital is paid back into the business if required or to the heirs of a deceased shareholder.

Claire Armstrong

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Death and Taxes

Business Protection Revisited

For all business owners when it comes to protecting the business the key considerations are continuity and succession.

On the temporary absence or loss of a key person business owners need to consider for how long (if at all) the business could continue to run efficiently and remain profitable.  In addition to this they need to consider what plans are in place to ensure business assets are valued correctly and passed to the right people.

Businesses look to protect themselves against every eventuality, buying cover for their buildings, contents, materials and cars. However, the majority don’t cover their single biggest asset – their employees. According to research carried out by the British Chambers of Commerce in 2009, more than 60% of businesses have at least two key individuals. However, 44% of those surveyed said their businesses wouldn’t survive longer than 12 months if they lost one of these key people.

We touched on this subject in our blog last month and it is a subject we plan to revisit regularly as there continues to be a staggering need for companies to address this issue.

We’ve all heard at one time or other someone quote those famous worlds from Benjamin Franklin “In this world nothing can be said to be certain, except death and taxes”.  Ask any business owner what concerns them when it comes to tax and they will most certainly respond that they want to ensure they maximise all available tax advantages and to have the correct accounting procedures in place to do so.

Why then do so many companies remain resistant when it comes to having the correct plans and procedures in place to ensure death or serious illness does not affect the daily running of the business?

Consider the likelihood of at least one partner/director in a firm dying before age 65*

Age Number of Partners/Directors
1 2 3 4 5 10
35 7% 13% 19% 25% 30% 51%
40 7% 13% 18% 24% 29% 49%
45 6% 12% 17% 23% 27% 47%
50 6% 11% 16% 21% 25% 44%

 

Further to that consider the likelihood of at least one partner/director in a firm having a critical illness before age 65**

Age Number of Partners/Directors
1 2 3 4 5 10
35 29% 50% 65% 75% 82% 97%
40 29% 49% 64% 74% 81% 97%
45 27% 47% 62% 72% 80% 96%
50 25% 44% 58% 68% 76% 94%

 

Are the percentages as you expected?

Whether you are a Limited Company, Sole Trader, Partnership or Limited Liability Partnership the threat of death or serious illness of a key person is very real and it doesn’t have to mean the end of a business you have worked hard to create and make profitable.

If you are considering (or know someone who should be considering) continuity or succession planning we can help with calculating the level of cover required, how to set up the arrangement and the tax implications associated with the premiums and benefits payable on these plans.

We have dedicated teams with 5 of the top Business Protection Providers who can help us help you put the right plans in place, allowing you to get on with making your business profitable without the worry of what happens if someone takes seriously ill or dies.

It isn’t as complex or as expensive as you might think, so don’t delay, get in touch with us today and let the Expert Team at Oliver Asset Management ensure your business goes from strength to strength safe in the knowledge your protection needs have been met and will be reviewed regularly.

We look forward to hearing from you.

Dr Claire Armstrong

Source: www.actuaries.org.uk/knowledge/cmi/cmi_tables

*Based on mortality data from TMN00 (temporary assured lives, male non-smokers, 1999-2002) at five or more years’ duration.

**CIBT02. Based on 1971-2003 population data and experience, published in SIAS paper Exploring The Critical Path, 2006. Males, stand-alone extended cover, including own occupation and total and permanent disability.

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Business Protection – Can you identify a need and are you covered?

As of April this year there were over 2.5 million registered companies in the UK* and a staggering Business Protection gap defined by Legal & General as £1.1 trillion **.

44% of business owners said their businesses would fold within 12 months of the death or critical illness of a key person and only 4% of business owners have shareholder protection in place**.

If you are involved in a business small or large you will know that an integral part of the running costs includes insurance in relation to buildings and contents, key equipment, stock, vehicles and Public liability to name but a few.

The cost of each is taken as a given and paid regularly to ensure a business is functioning within the right legal requirements and to provide backup should the “worst” happen.

There is no doubt that equipment, vehicles, location etc provide the means by which a business can offer goods or services but what is the real backbone of any firm are the people who make it successful and profitable.

A successful business is one which not only makes the most of its key individuals but nurtures their expertise and reaps the reward in terms of the relationships they develop with suppliers and customers.

Have you considered the cost to your business if you were to lose one of your key individuals through ill health or death?  If you can think of someone within the business whose temporary or permanent loss would affect the company’s ability to maintain turnover and generate profit then they are a key individual and they should be covered.

If you lose a Key Person from the firm you need to be able to cover the cost of recruitment and replacement for that individual as well as making up for loss of profit directly attributable to them. You may also require reserves in place to ensure any business liabilities such as overdrafts, business loans or even Directors Loan Accounts can be repaid if they are recalled.

Business Succession Planning

As well as Key Person cover there is a massive need for Shareholder Protection within firms, or more specifically Business Succession Planning.

Business Succession Planning not only protects the company but also the employees, their families and the shareholders.

Some of the most frequently asked questions for shareholders within a company when considering the death or critical illness of a co owner include:

  • What happens to their shares when they suffer a serious illness or die?
  • How would the control of the business change?
  • What would be the cost of buying out the co-owner’s share?
  • Where does the cash come from to purchase shares from the co-owners family if they do not wish to retain an interest in the business?
  • What agreements can be put in place to ensure remaining shareholders and surviving families can exercise their preferred options when it comes to retaining or selling shares?

We can help answer these questions for you.

The partner, shareholders and key people in any business are its driving force, they are a valuable asset and you need to have plans in place that ensure if they suffer a critical illness or die your business can still continue and remain profitable despite the loss.

The death or critical illness of a key person in your company could threaten everything you’ve worked so hard to achieve, is it really worth the risk not to have the correct cover in place?

If you’re not sure where to begin then we can help.  We can take you through a step by step guide which helps you consider who needs to be covered and for how much.   In conjunction with this we will make you aware of the tax treatment of your premiums and benefits paid on any plans and talk you through the appropriate agreements which should be in place to ensure benefits are paid correctly.

It may seem like a minefield of information but we can pinpoint the need within your company and provide you with a complete report on what would be required and the monthly cost, incidentally it isn’t as much as you would think.

Whether you are a Sole Trader, Co-Owner, Partner or perhaps even a Key Person in a firm we will be able to talk you through the options and help you through the process from beginning to end.  We also offer a regular review service and would revisit all your planning on an annual basis to ensure your protection planning is keeping pace with any business changes.

So don’t put off any longer, if you want to speak with us further about how to protect your Business then we’d love to hear from you.

Claire Armstrong

*www.companieshouse.gov.uk (as at 03/04/2011)

**www.legalandgeneralcomms.co.uk/businessprotection

 

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