How to protect against uncertainty

By Nathan Munt, Lucas Fettes Financial Planning
Whether you are an established business or a start-up, contingency planning is an essential and proactive strategy, which involves assessing crucial operations and managing any risks identified.

Published in Norfolk Director Magazine Autumn 2021

Ensuring Business As Usual: Lucas Fettes

One frequently seen risk is an over-reliance on individuals who contribute a significant amount to a business’ profitability and overall success. In the event of critical illness or death, replacing the knowledge, experience and leadership of key individuals is challenging. Businesses don’t usually fail in the short-term because of falling profits, but rather because of cashflow challenges; insuring against this possibility can provide a lifeline for your business.

How real is the problem?

It’s likely that you’ve already thought about buildings and contents insurance, but have you covered your biggest asset – you and/or your key employees?

In reality, the risk is likely greater than you may think.

Take Sarah and Tony who run a family business, employing a handful of staff. Sarah is 40 and Tony is 48, both wanting to retire by 65. There is nearly a 1 in 4 chance* that one of them will suffer a serious illness or die before retirement. Either event could have serious implications for their business and employees.

 *Figure taken from Legal & General’s risk reality calculator, assumes both individuals are non-smokers and based on current population and industry statistics. These figures are an estimate and guide only.

 What can you do?

As a business owner, you will have worked hard to build the capital value of your business and, whether you see this as your exit route or wish to preserve and grow it, failing to protect against the loss of a key employee can have a detrimental impact, and may even delay your exit plan.

For a modest monthly amount, you can insure this risk. Key Person Protection is a life insurance policy written on the life of a key person but, importantly, owned by the business. Critical illness can also be added at the outset.

Do you need it?

Start by conducting a business risk assessment. Ask yourself:

  • Who are my key employees?
  • How much do they contribute to profits?
  • How long would my business survive if I lost a key employee?
  • What liabilities would need repaying?

If it’s clear that a cash injection would be needed, consider:

  • Where would this money come from?
  • Does the business or its owners have the cash to continue?
  • How quickly would the cash be required?
  • Would a bank loan be accessible after losing a key individual?

If a claim is made on your Key Person Protection Insurance, the policy provides a cash injection into the business. This could be used to cover business debts, temporarily replace lost profits, or contribute towards recruitment. The tax treatment of premiums and benefits paid can be complicated, so you should discuss this with your accountant beforehand.

If you would like to discuss your options, please get in touch.

Lucas Fettes Financial Planning® is a registered trading name of Lucas Fettes & Partners (Financial Services) Limited and is authorised and regulated by the Financial Conduct Authority

Nathan Munt is a Chartered Financial Planner at Lucas Fettes Financial Planning who are a multi award-winning firm of chartered independent financial planners. T: 01603 706854
or visit

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