Don't get caught out by the unexpected

Farmers work tirelessly to run an efficient and profitable business and to provide an income for the family, but what happens if disaster strikes and you can no longer work.  Is there anything that can reduce the impact to that loss of income and halt the decline in the profit and output of your business?

Having worked hard to build up your business, quite often from previous generations of family members, it makes sense to protect it.  We find that while business owners probably have insurance cover for buildings, fixture and fittings, stock, cars and machinery, invariably they do not cover the single biggest assets – the business owner and the key employees.

Sunnyside Farm

In this fictitious example, Sunnyside Farm is very profitable and has been built up over several generations.  John Sunnyside is now 65 years old.  His son, David, who is 40, runs the farm and is vital to the business.  John wants to insure David to provide cover in case he were to suddenly die or be diagnosed with a serious illness.  The following scenarios show the effect key man insurance could have. 

Scenario 1

The farm takes out key person cover on

David’s life - £500,000.

David has a stroke and is forced to retire early.

The £500,000 benefit cover from the policy covers the sudden loss of profits and pays for someone to be recruited and trained. Sunnyside Farm continues trading and making a profit.

Scenario 2

The farm does not take out key person cover.  David has a stroke and is forced to retire early.  The farm has no budget to cover the sudden loss of profit or to hire new people.

Two options for the farm:-

• Take out a business loan and risk default.
• The Farm does not recruit or replace staff and John, at 65, tries to continue the business, putting not only the business at risk but also his own health.

It won’t happen to me

It is very easy to forget, in the everyday hustle and bustle of life, what could happen to the farm if one of the partners or a family member working on the farm died or became seriously ill.  However unfortunate, the unthinkable does happen, as these statistics show:

Cardiovascular disease causes more than a quarter of all deaths in the UK – an average of 435 people each day*

One in two people will develop cancer at some point in their lifetime**

What would the impact be on the farm in this scenario?

There are various options and types of policies for business protection and key person cover.  When reviewing the farm and the farm’s business plan, consider how losing a key person would affect continuity and plans for the future.

* British Heart Foundation, CVD statistics UK factsheet, January 2017 

** Cancer Research UK, press release February 2015

Birkett Long IFA LLP can provide specialist help with these types of arrangements; if you would like further information please contact Nicola Ward on 01206 217309 or [email protected].