Business Protection - an important aspect of your business.
Vijay Madhavan, Sales Director, Petra Insurance Brokers LLC, Dubai.
Whether corporate or small and medium-sized businesses, Business Protection Insurance is needed to ensure the succession and continuity of the business. Many business people spend most of their time for running and developing the business and it would be their priority. Very rarely the business owners ever considered what would happen to the business if they were to die? Would the business survive such a disruptive time? There is no escaping the fact that whatever type of business you have, your death could have a catastrophic effect on its future. Your death could have a devastating effect on business profits, and possibly lead to financial hardship for your own beneficiaries. Although you cannot be replaced, the proceeds of a Business Protection Insurance will go some way towards compensating the business and your beneficiaries for your loss.
If a business owner dies in the UAE the implications are many fold - legal, financial and emotional. There are many risks associated with this – wealth risks, family risks, legal risks and business risks.
Wealth Risks. Most of the business people invest everything in their business because they considered that their business is the best investment in terms of return. In some cases the business may be the single most valuable asset the owner has. They reinvest the generated profit for the development of the business.
Since all of the owner’s wealth is invested in the business, it becomes the sole source of income. If the business fails, or if the owner dies without proper income protection, his family could be left without any source of income. If the owner is the key person in the business the problem is even bigger when the owner falls sick or become disable. Mostly, the entire business depends on him and the income could stop when work stops, while expenses and business costs may continue at full intensity. More over all the assets and bank accounts will be frozen immediately on the death of a person. How will your family and business survive without the access to money?
Family Risks. It is the need and responsibility of the family to do the rituals to the remains of the deceased person. If a person dies in the UAE the body will be released to family only after clearing all the liabilities, both personal and business, in that person’s name. So it become the risk for the family to clear these liabilities. How do the family find out money to settle the liabilities? How do the family overcome the emotional implications if they were not able to release the body of the deceased soon?
Legal Risks. All the personal and business assets of a deceased expat will be distributed as per the law of the land (Shari’ah Law) if the person is a Muslim. However if he is a not a Muslim and has created a Will as per the law of the country of the deceased, the assets will be distributed as stated in the Will. The guardianship of the minor children of the deceased is not automatically granted to the mother. The father-in-law gets automatic guardianship of the children. If the government is not able to contact the father’s side of the family, the children could end up in government care, not with the mother. His personal and business bank accounts may be frozen (within one hour) till such time as all the liabilities are cleared and the succession of the assets are declared by the court. In the absence of a registered will, the estate of the deceased is distributed according as per Shari’ah law. This has huge implications for a business owner because his family may be left with no access to their bank accounts or assets sometimes for as long as 18 months till the courts decide on how to distribute the assets.
Business Risks. If a business owner dies, the family will not get the money that was invested in the business immediately. In the absence of the owner, how will the business get adequate working capital to continue the operations? How will the suppliers be paid the amounts due to them? Will the outstanding debt in the market due from customers be able to collect? How will the salaries of the employees be paid? If the employees are not paid in time will they remain with the company? If employees leave how will their gratuities be paid as per labour law? When the key employees leave the company they take away the business and join with the competitor. What happens to the value of the business then? The value of the business diminishes considerably and may be reduced to mere scraps. What is the solution?
By establishing a Business Protection Insurance with a reputed insurance company you will be able to ensure that the business would continue uninterrupted in case you die and at the same time protect your family from the financial hardships. The need of business protection can be two fold. One if your family member is able to run the business in your absence the require amount of business protection is to cover all the liabilities and one year business running expenses. The second is if your family is not able to run the business in your absence then the required amount is to protect the value of the business and to cover all the liabilities.
In addition to the risks on the death of the business owner, there are some other areas also to be considered. If the business owner become disable to run the business due critical illness or accident similar implications arise. If you want to make good the loos of business profit in case you become disable it can be added in the insurance benefit. A WILL has to be prepared based on the home country succession law. And a power of attorney has to be written on the successor’s name, so that the successor can use this document if the business owner is either mentally incapacitated/missing/in coma.
A professional independent financial adviser will be able to help you to assess the required amount of insurance based on the status of your business and also to establish the business protection arrangements. An adviser with a Business Protection Insurance financial health check can provide you with a review of potential risks to your business and explain in a comprehensive report how these risks can be mitigated and managed.
When the cost of the cover is compared to the potential benefits, it can usually be seen to be affordable and attractive to help complete the business protection insurance portfolio.
Do not predict the future of your business, protect it