Whilst not great for the person who died, it can be disastrous for the living.
Many, many years ago I was watching a well-known family charity fund raising show. The usual thing, sitting in front of the telly, gawping at somebody else’s misfortunes in the name of entertainment.
On this particular occasion, a celebrity visited two or three adults in the UK who had fallen on hard times. The intention of course, being a charity fund raising show, that the viewer should feel sufficiently moved to put their hand in their pocket and send money to the charity, some of which may find its way to these less fortunate souls.
There was one particular story that has always stuck in my mind – a lady who was almost destitute, having previously lived the high life of luxurious living and wonderful holidays.
What had happened to cause such an awful chain of events that left her world crashing around her? Answer: Her husband was a successful businessman, and he died. The business collapsed and she lost everything.
My immediate thought was, well, was he insured? If not, why not? He could have been uninsurable of course, but there was no suggestion of that. Was he approached by a financial adviser who recommend that he insure himself, only to be dismissed because he did not want to incur the premium cost? Or was he never approached and never knew that he could insure himself?
This story, though vague in my mind now after so many years, brings together four strands of life cover:
- Family protection
Straightforward life cover, paid for personally, to ensure loved ones are financially secure after your death. This is family protection; however, the business could have insured him instead.
- Relevant life cover
Relevant life cover is taken out by the company on the employee. However, the policy is placed in trust for the employee’s family. The company acts as a trustee and pays the member’s family should the worst happen. It is often more tax-efficient than family protection.
- Keyperson protection
Keyperson cover – clearly, he was crucial to the business. The business could have insured itself against his death or sickness. The funds might then be used to cover loans that may have been called in or cover the cost of cancelled orders from customers or suppliers. More importantly, the funds could be used to recruit a replacement or even provide training for other employees. Consequently, the business may not have collapsed.
- Shareholder protection
We have no idea if there were co-shareholders in this business. Keyperson cover would have left the business with cash in the bank but with the widow holding the shares. Shareholder protection would have provided the funds and the mechanism for the business, or the co-shareholders, depending on how it is written, to purchase the shares from the widow. She would have been fully compensated based on the value of the business immediately prior to death.
Key takeaway
The moral of the story is obvious. We are fortunate in the UK in that we have a vibrant financial services and insurance industry, and it is important that, where appropriate, advisers should highlight the importance of insurance to our clients. But it is equally as important that our clients prioritise their expenditure accordingly and seek the necessary advice to ensure that colleagues and loved ones are not left behind in financial difficulty
If you would like to know more about business and personal protection, please contact our advisers now for more information on advice@mwmeb.co.uk.
Disclaimer
The information provided is for general information only and is not intended to address the particular requirements of an individual or business. It does not constitute any form of advice or recommendation by MWM Employee Benefits or Menzies Wealth Management Ltd and should not be relied upon by individuals in either making or refraining from making any financial decisions. Where necessary, you should seek appropriate professional advice before acting on any of the information provided.
MWM Employee Benefits is an appointed representative of Menzies Wealth Management who is regulated and authorised by the Financial Conduct Authority (FRN 486548).
Menzies Wealth Management Limited is registered in England and Wales under number 06597008. Our registered office is at 4th Floor, 95 Gresham Street, London, EC2V 7AB
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