It always feels strange to talk to our business clients about expecting the unexpected however, after all, planning for the unexpected is what has contributed to their success.
These are people who think on their feet, are the hardest worker in the room and have the ability and resilience to pivot when something unexpected threatens their business.
But many, most entrepreneurs perhaps, never plan for this in their personal lives. I am currently advising a new client who was diagnosed with terminal cancer. He is a successful business owner, with partners in the business, and now has to firm up his will and testament, while dealing with the stress of this unexpected diagnosis.
This entrepreneur does not have sufficient life insurance or dread disease cover to look after his share in the business, which has grown well beyond expectations over the last few years. It leaves him with the difficult task of negotiating an amicable agreement to buy out his share or transfer it to his family, after his passing.
Unfortunately, strange things often happen when money and partners mix. In one recent instance, a businessman left his share in a property investment vehicle, to his wife. This was her retirement fund, but she has seen meagre returns as the other partners used this vehicle to absorb all business costs, which means that it rarely turns a profit.
To protect your legacy and your family’s well-being in the unfortunate event of a dread disease diagnosis or if you pass away, keep the following in mind when you set up a business partnership or plan your will as an entrepreneur:
1. Don’t risk not getting cover
According to recent claim statistics by Sanlam, 60% of all dread disease claims were made by people between 46 and 55, not older.
Having a stroke or being diagnosed with a disease such as cancer could leave you uninsurable, which will put an unnecessary strain on your family and business partners.
2. Look for the correct cover
If you are diagnosed with a serious illness, you may not be able to continue working and you and your business could suffer.
You would look at dread disease cover, or an income protector, to protect your business and loved ones from the impact of not being able to work.
A life insurance policy is also very important to ensure that your family is able to maintain their standard of living, should you pass away.
It could also help your business partners with the money needed to purchase or sell your stake in the business.
3. Get it in writing
Good fences make good neighbours. I have seen business partners sell the company assets to a new company – at fire sale prices – just to keep them from the deceased partner’s family.
Unfortunately, this is seldom a concern when business partners buy life insurance on the life of the other partner, and they contractually agree that the pay-out amount will purchase the deceased partner’s share from his family or estate.
4. Start small, but start now
Life insurance or dread disease cover is far down the to-do list when you are struggling to build your business. Bear in mind however that no business starts out as a R100 million business hence, you do not need thousands of rands of life cover from day one.
Start with a small amount, but make sure the contract – as discussed in point three – is water tight. Then make sure you review your cover at least annually, but preferably more often while your business is growing rapidly.
A competent financial planner such as a CERTIFIED FINANCIAL PLANNER® professional is ideally placed to help you understand what type of cover best suits your business needs and what value would be sufficient. In addition to this, they are able to assist you with the appropriate paperwork to secure your interests and that of your family.