For customer use Friends Life Individual Protection Business Protection from Friends Life Who cares about protecting the value of your business? We care.
Value your business You are likely to have taken measures to protect your business against fire and theft and also put plans in place to ensure the future growth of your company, but what steps have you taken to cover the loss of arguably your most important assets yourself and your key personnel? Friends Life Individual Protection provides a comprehensive business protection plan designed to reduce the financial impact if someone key to your business dies, is diagnosed with or suffers from a critical illness. How well is your business protected? The financial impact following the death or critical illness of key individuals can put your business at risk. These events often occur when least expected and can cause: loss of profit interruption to cashflow disruptions to loan repayment changes in shareholder control. In some instances the financial burden could be so great that the business is unable to continue. The concept of business protection is to put in place arrangements that help ensure necessary funds become available if those key to your business die, or suffer from or are diagnosed with a critical illness during the term of the policy. These funds can be provided through the use of appropriate life cover. Inflation will reduce the value of money you receive in the future. To ensure your cover meets your needs regularly review your plan with your financial adviser. The Friends Life Individual Protection Business Protection Plan offers life cover which pays a cash sum on the death of the chosen life assured during the term of the policy. You can also include critical illness benefit that pays out a cash sum on the diagnosis of a critical illness that meets our policy definition. You have a choice of level or decreasing cover. Please note the policy has no cash value. Our Business protection cover has been specifically designed for the following situations: partnership or shareholder protection keyperson protection business loan protection. 2
Value your Partner(s) or Shareholders Partnership/Shareholder Protection How will it benefit your business? If you are a business partner or a shareholding company director, your share in the business is likely to be one of your most valuable assets. What would happen if you were to die? Would the surviving partners/directors have easy access to funds to purchase your share of the business from your estate? Would those who inherit your estate want to involve themselves in the business? Would they be able to sell their share? What if you were diagnosed with a critical illness? If you wished to retire from the business who would be able to provide the funds to purchase your share? Partnership or shareholder protection can offer solutions to these potential problems, by combining a means to provide the necessary funds with a legal agreement that ensures those funds end up in the right hands. Example John Robinson is one of the three shareholding directors of a glazing company. The company is worth 900,000 and each director owns a third of the shares in the business. Unfortunately John dies in a car crash. With shareholder protection in place John and his co-directors had taken advice from their financial adviser and put in place a shareholder protection arrangement. Each director had taken out life cover of 300,000 and placed it under trust for the benefit of their co-directors. Their solicitor had also updated the articles of association to ensure that a deceased director s shareholding could be purchased from their estate. On John s death, his life cover paid out 300,000 to the trust. The trustees passed this to the two surviving directors who then purchased John s shareholding from his family who had no desire to become personally involved with the business. The money helped them at this difficult time. The two co-directors were able to retain control of their business and each now owned 50% of the shares. Without shareholder protection If the three directors had made no arrangements then, on John s death, they would need to raise 300,000 to finance the purchase of his shares. Without sufficient personal funds, they might have to take a loan. If a lender was unwilling to give a loan then the share purchase would not be possible. A third of the company would remain in the ownership of John s family. They may not want involvement in the business and may prefer the 300,000 following the death of John. Partnership or shareholder protection can help your business reduce the financial burden resulting from death or critical illness of key personnel. 3
Value your Key People Key person Protection How will it benefit your business? Most businesses have an individual who is key to the success and profitability of the business, a key person. The death or critical illness of a key person can financially impact your business in the following ways: the costs of recruiting and training a replacement a loss of sales and new contracts a loss of confidence in the business additional pressure on senior personnel covering the key person, possibly causing some staff to leave. Key person protection can provide funds to help your business cover the financial impact of the death or critical illness of your key person. These funds would be yours to use, as you consider appropriate, for the benefit of your business. Example Sally Wilson is head of sales for a graphics studio, Expose Ltd. She has a wealth of sales experience, a good reputation with all the company s customers and unrivalled negotiating skills. She is key to the business and receives a very generous salary in recognition of this. Unfortunately, Sally suffers a stroke that leaves her severely paralysed and unable to return to work. With key person protection in place Two years ago Expose Ltd had taken out life cover with critical illness benefit included. It would pay the company 500,000, equivalent to five times Sally s gross salary, if she died or suffered a critical illness. The policy was for a term of five years. Sally s condition was one covered by the policy s definition of critical illnesses, so the company was able to claim payment of the 500,000 sum assured. Expose Ltd could now use this money to headhunt a suitable replacement for Sally and finance other initiatives designed to minimise any fall in profits resulting from her disability. Key person protection can give you the financial resources to help deal with the loss of a key worker. Without key person protection If Expose Ltd had made no arrangements, then in order to meet all the extra costs resulting from Sally s disability, they may have to self-finance or incur extra debt. Either method would be likely to put additional strain on the company s finances. The company may find it difficult to recover and could even be forced into liquidation. The likelihood of your business being impacted may be higher than you think. The table below highlights the probability of at least one male keyperson dying before reaching the age of 65. Average age of the key persons Probability of 1 key person dying Probability of 1 in 2 key Probability of 1 in 3 key Probability of 1 in 4 key Probability of 1 in 5 key 30 14% 25% 36% 44% 52% 35 13% 25% 35% 43% 51% 40 13% 24% 33% 42% 49% 45 12% 22% 31% 39% 46% 50 10% 20% 28% 36% 42% 55 8% 16% 23% 30% 36% 60 5% 10% 15% 19% 24% Calculated from UK National Statistics interim life tables 2007-2009 (for males) 4
Value your Financial Commitments Business Loan Protection How will it benefit your business? There are many reasons why a business may require cash, in the form of a loan, for example to: buy stock finance the cost of new equipment purchase new premises meet product development costs recruit a new sales team. Where a business has obtained a loan, it must consider not only how to meet any ongoing repayments but also how to finance full repayment should the lender call-in the loan prematurely. A commercial lender will often make a business loan subject to repayment on the death of a certain, often key, individual. Alternatively, if finance has come from a director s loan account, and the director were to die, then their estate may demand repayment of the outstanding loan. Business loan protection can provide a business with a cash sum that can be used to help repay a loan on the death or, if required, earlier critical illness of a specific employee. Example Simon Brown is the managing director of an engineering company. He needs to raise 600,000 to purchase new specialised equipment. HBIZ Bank are willing to lend this sum to the company over ten years on an interest-only basis. The bank stipulate that the loan would have to be repaid immediately if Simon, the key figure and driving force of the business, were to die within this period. The loan was made and used to buy the new equipment. Eighteen months later, Simon dies suddenly from a heart attack and HBIZ called in the loan. With business loan protection in place The company was able to guarantee sufficient funds to repay the loan, on Simon s death, by taking out life cover of 600,000 over a term of ten years. The company claimed the 600,000 and repaid HBIZ Bank in full. Without business loan protection The company must repay the loan on Simon s death using finance from its own resources. Unfortunately, they don t have the available funds to repay 600,000 and cannot get a further loan, due to the loss of their inspirational leader, Simon. Their only method of raising the necessary capital is to sell a number of the company s assets. This may be below their market value, and could mean restructuring and downsizing the business. Business loan protection can help cover the loans of the business following the loss of key people. 5
Value Friends Life s Business Protection Plan Friends Life is with you every step of the way. Why choose Friends Life Individual Protection for your business protection needs? the ability to increase the amount of cover when the value of your business, loan or keyperson increases, without any further medical underwriting, subject to certain conditions. interim Life Cover available during the application process. Up to 500,000, maximum age of life/lives assured 55. Please see the our Accidental death benefit cover for more information. the option of decreasing cover critical Illness cover if you choose this cover it will provide a cash sum, if during the cover term a life assured is diagnosed with one of a defined list of critical illnesses. Applying is easy We have developed our application process to be as straightforward as possible while providing a consistent and fair approach to all our customers. Your adviser can apply online, using our tele-interviewing service or by paper. Making a Claim Friends Life Individual Protection will give you all the help we can to ensure we pay your claim and help you through the difficult times. We believe in treating you as an individual and recognise that in the event of a claim it can be a very stressful time for you, your business, or your family. That s why we continue to enhance our claims service to support you in your time of need. You will be provided with a direct line to our claims department where you will receive a highly personalised service based on your individual needs. Speak to your financial adviser for more information. Friends Life Limited is authorised and regulated by the Financial Services Authority, register number 196142. Friends Life Limited is an incorporated company limited by shares and registered in England and Wales number 4096141. Registered Office: Pixham End, Dorking, Surrey RH4 1QA. www.friendslife.com Friends Life is a registered trade mark of the Friends Life group. PBHA/PNSA107/DEC11 UNI 79792