October 16, 2015

Running your own business comes with never-ending challenges but did you know there are steps you can take to protect your business success? Regardless of whether you are running a 10-person startup or a company with hundreds of employees, business insurance is a valuable tool that you can employ to help ensure the success and continuity of your business.

Manulife Singapore provides sound financial advice on how business owners can make use of insurance to protect their business.

I own a mid-sized business with a few partners. Should I be concerned about what will happen to the business if something happens to me or any of my partners?

This is definitely a valid concern as complications may arise if something unexpected happens to you or one of your partners, such as death, disability or major illness.

If a proper plan is not in place, the exiting partner’s shares may go to someone who does not know the business or may not have the adequate skills, interest or experience to run the company. There may also be conflicts between the heir and the other shareholders, for instance if the heir is keen to sell his share and cash out rather than keep the business.

You can plan ahead by setting up a business succession plan and a Buy-Sell agreement. In the event that one partner passes away, a Buy-Sell agreement will enable the other partners to buy over the deceased partner’s share from his/her family and continue running the business without disruption.

Insurance can help to serve as a source of funds for this purchase. Each partner can take up a life insurance policy on the life of the other partner(s).  If one of the partners passes away, the surviving partner(s) can use the proceeds from the policy to buy over the deceased partner’s share.

My key executives are the most important assets of my business. What solutions can I take to mitigate the risk of losing them?

Your people are your company’s most important asset and when people fall apart, companies can also fall apart. Losing one of your key executives to death, illness or disability can be detrimental to your business in many ways. It could lead to a potential loss of profits, business confidence and even credit worthiness. The cost to replace the executive in terms of lost skills and expertise is also very high.

Such risks can be mitigated by using keyman insurance to offset the potential financial loss caused by the death, illness or disability of a key executive. The coverage amount will depend on the contribution that the executive makes to the company. This can be calculated in various ways, for instance as a multiple of the person’s annual salary or of the profits he brings into the company. If something untoward happens, the proceeds from the insurance policy can be used to mitigate any financial losses or support the continuity of the business operations.

Other than protecting against unfortunate events, how can I retain my key executives and ensure that they stay loyal to my company?

Your key executives are vital to your business success and losing them to competitors can be very costly to your business. It is worthwhile to invest in retaining them and ensuring that they are well remunerated.

To help you retain your key executives, your executive retention plan can include a savings-oriented insurance policy as an additional remuneration benefit. The company will pay the insurance premiums for the executive, who will own the policy and its accumulated cash value. The policy can also be structured to provide a bonus that is tied to the executive’s tenure at the company. This serves as a form of long-term benefits that motivates the executive to stay with the company for a certain period of time.

I would also like to do more to take care of my employees and keep them motivated. What can I do?

Protecting your employees with a comprehensive range of benefits can strengthen their loyalty to the company and boost their morale. You can consider getting group insurance plans to cover your employees’ hospitalisation and surgical expenses, outpatient medical expenses, and even provide compensation in the event of accidents. Group life and critical illness insurance will also give your employees assurance that the company will take care of them and their loved ones. Such insurance will provide a lump sum payout to ease the family’s financial impact in the event of an employee’s death, disability or critical illness.

To learn more about how you can protect your business from unexpected financial risks, speak with Manulife at 6833-8188.