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Business overhead protection

Content provided by Sanlam. See Financial Solutions for Business Owners, for tailormade financial advice.


risk-management.jpgWhen the inevitable happens and a co-owner dies, the business normally faces a turbulent time. The business may be catapulted into a crisis. Remaining owners, employees and clients need to come to grips with the fact that one of the main drivers of the business is no longer there. Normally in spite of the best efforts, it impacts on the business in the critical 6 to 12 months after the death of such an owner.

The operations may be temporarily impeded to such an extent that the business will not be able to pay its overheads. This problem is compounded if the business had a single owner.

If the business closes down due to the lack of succession planning after the death of an owner, it leaves the business seriously exposed w.r.t. overheads that exist because of longer-term agreements. The liability in the business may in some cases follow straight into the affected owner’s estate.

An example of potential overheads that may be claimed even after the business closed down after the death of the owner:

  • the employees of the business may institute a claim for severance pay; and
  • the landlord may wish to recover the rental for the full rental agreement period.

Overheads protector solution

The overhead protector has as goal to protect the business against the turbulent time directly after an owner dies. It does so by creating funding to secure at least the overheads of the business for a period of between 6 and 12 months. This is done by insuring the lives of the owners.

The business would typically take out a policy on the life of the owners. In the event of the death of an owner or a co-owner, the proceeds of the policies will be paid to the business.

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