Understanding insurance for a family business

As a family business, we’re willing to bet there’s a lot on your plate. Between day-to-day operations and occasional family politics, there’s always something demanding small business owners’ attention.  

But when you want the best for your family business, some things are worth making time for – like reviewing your options to protect your business against the unexpected. After all, your family’s future may be on the line.

But where do you even start? Is there a difference between personal life insurance and life insurance for small business? And how does business insurance affect your business continuity or succession plan? Just like all families come in different shapes and sizes, it’s the same for insurance. In this guide, we’ll help you understand life insurance for a family business, so you can make smarter decisions that are future-focused.

Let’s get started.

What is a family business?

It may seem like a straightforward question, but what technically constitutes a family business? Although there is no strict legal definition, a family business is usually where two or more family members are involved, and the majority of ownership lies within the family. Multiple generations of a family may influence decision making. Family relations that can impact business decisions include:
 

• Blood relation
• Marriage
• Adoption

A family business also doesn’t need to be small. Some examples of larger family businesses include Volkswagen Group and Samsung Group.

Why is insurance important for your family business?

Any disruption to your business can mean bad news and high cost; I’m sure we don’t need to remind you. If something happens to you or a key person within the business, it might cause a big headache. It can be helpful to ask yourself, what could go wrong with your business? And then, are you prepared for that? It may be beneficial to consider all the risks to your family business regarding your:
 

• Premise
• Particular industry
• Equipment
• Staff
• Intellectual property
   

Planning for the future of your family business certainly shouldn’t be all doom and gloom. But considering business insurance now can help you enjoy work knowing your legacy is protected.

How can insurance set up the next generation?

One of the significant benefits of being part of a family business is often knowing that the next generation will carry the torch for your business.  You want the best for them not just because you want the business to succeed, but also because they’re whānau and you care. Setting up business insurance and a business continuity plan or succession plan can equip them with the tools to do well.

Does working in a family business affect your premiums?

Short answer; no. There is no favouritism from an insurer whether you’re part of a family business or not. The difference is more to do with ownership and shares. Being a family business may affect your business continuity plan or succession plan as there are family ties to be considered.

It’s never nice to consider what would happen to your family business if you were to pass away. In saying that, it can be important to make an estate plan for if the unfortunate ever happens. An estate plan can include covering a will, choosing a power of attorney, and considering the best ownership strategy for your shares. Talking with a lawyer when planning your estate can be best, but here are some thought starters.

1. Make a will

We all know what a will is. But when it comes to your family business, a will can be an opportunity to specify who will take over running your business and the direction you hope the company goes in the future. Although these instructions would not be legally binding, they can help with the administration of your estate. You can also specify details for the transfer of your shares. There are helpful online resources available to consider your will before speaking with a lawyer.

2. Pick an enduring power of attorney

An enduring power of attorney is a document that gives the person you’ve specified the power to act on your behalf if you lost the ability to make decisions yourself. You can pick an enduring power of attorney to make choices about your money and property, and another that deals with your personal care and welfare. When considering your family business, a money EPA can be particularly important. Although, it’s recommended to have both

3. Set up a business succession plan

A business succession plan can be critical to ensuring the success of your family business should something happen to you. It’s an in-depth plan about what would happen to our business that, unlike the instructions on your will, is legally binding. Before talking to a lawyer, you can consider how your business succession plan may look with online resources.

Top tip: A business succession plan and business continuity plan go hand in hand.