Expecting the unexpected is part of being a business owner and entrepreneur. Unfortunately, this does not always apply to planning for death or disability.
As an example, I am currently advising a new client who was diagnosed with terminal cancer. He is a successful business owner who has partners in the business and who now has to create a 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 after a dreaded 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:
Don’t take the risk of 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.
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 this.
If you pass away, your family or business partner may need money to purchase or sell your stake in the business. For this eventuality, you should purchase life insurance.
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. But this is never a concern when business partners buy life insurance on the life of the other partner and they contractually agree that the paid-out amount will purchase the deceased partner’s share from his family or estate.
Start small, but start now
Life insurance or dreaded disease cover is far down the to-do list when you are hustling and trying to build the business. But as no business starts out as a R100 million business, you do not need thousands or rands of life cover from day one.
Start with a small amount, but make sure the contract – as discussed in number 3 – is water tight. Then make sure to review your cover at least annually, but preferably more often while your business is growing rapidly.
Author: Wouter Fourie
Wouter is an Advanced Post Graduate Qualified Financial Planner (Investments and Estate planning) with more than 18 years’ experience in the field of comprehensive financial planning and Wealth Management.