Most businesses require several insurance policies to cover all eventualities. In most cases, the best cover portfolio for a business and its directorship would be tailor-made by financial services consultants. Not all cover is the same, and different types of businesses in different industries require different policies, for different things, and varying extents of cover, depending on their risk profiles.

However, there are certain core insurance policies beneficial to all businesses, and some that are crucial. One of the most important of these is a ‘buy and sell policy’. This type of cover is essential for co-owned businesses.

The point of a Buy and Sell Policy:

A ‘buy and sell policy’ will pay a lump sum to a business on the death or incapacitation of one of the business owners. This kind of business owner protection ensures that:

  • The financial contribution made by the deceased / incapacitated business partner is covered – absolutely crucial if the loss would otherwise lead to bankruptcy.
  • The labour contribution made by the deceased / incapacitated business owner can be ‘purchased’ from another, if this is required to keep the business afloat and operational.
  • You can pay out the deceased / incapacitated business partner’s family, and take 100% ownership, and control, of your business.

Comprehensive buy and sell coverage will ensure that you as the business owner or your partner’s family have this option. Things can get complicated when an uninterested family inherits business share. Imagine someone who has no interest in your business and has a 50% share wanting to sell to a third party? Or continue with ownership, without meeting responsibilities or contributing to the business?

There are a variety of messy, and potentially costly, scenarios that a buy and sell policy (along with any necessary legal agreements), can insure you against. When deciding on these policies, it is wise to have all parties present and in agreement. Each partner may have different requirements when it comes to buy and sell policies. Personalising the policies to meet the individual partner’s needs should be a priority.

The point of a buy-and-sell policy is to offer essential and fundamental business owner protection! Not only do they offer protection but your accountant can advise you on the tax benefits of having these policies for your business.

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