How to Protect Business Income and the Business Owner – Key Man Insurance
Key Man Insurance – Younger generations in the Philippines are getting more and more involved in the world of business and entrepreneurship. The main reason why Filipinos are getting into this career is to alleviate oneself from poverty, to generate more returns as compared to working as an employee, and to be their own boss. Nowadays, we see many local businesses striving to make a name for themselves such as restaurants, coffee shops, manufacturing and franchising stalls to name a few.
Building a business is not easy. Aside from passion and dedication to your line of work, you need to get yourself aware of the accounting, logistics, marketing, legal matters and competition statistics of your business.
- Technical Know How
- Target Market
Of course, the main objective of your business is to bring value to the community, make profit for your efforts and grow.
This is how a normal business operates:
Normally, the gross profit of a business is automatically placed in the bank as safe keeping and to address business expenses such as: wages and salary of employees, business operations, payments to suppliers, cost of materials and goods, transportation and maintenance, equipments, rental fees, expanding the business and of course, to fund for the business owner’s own needs in life.
In order for businesses and corporations to fully function, they need people to run operations.
Everyone has an important role of a business. But it’s the CEO’s or the business owners who have essential roles to keep their business up and running. They provide most value and contribution to the business because if they were taken out of the picture, the loss would contribute to a detrimental loss to the business operations and earnings.
How protected is your business in times of uncertainties?
Take a look at this scenario. What if the business owner/CEO/ general manager is taken out of the picture? The entire business interest and gross profit gets affected. Who will manage the entire company? Who will make key and profitable decisions? In case the business interest is secured, what about the business owner’s interest? Who pays for the current expenses and other financial commitments? What happens to the family of the business owner in case he/she dies?
Will the business continue to run smoothly? Will the business shut down because of the loss of a key person? In case the business survives, how long would they last before they recover from this loss?
The following are some problems faced by businesses and corporations:
- Poor planning – No proper financial management in business cash flow. Earnings are less than expenses.
- Continuing a business in uncertain times. During uncertain times, the following are essential:
- Emergency funds to continue the business
- Immediate successor in line in case the key person gets disabled/dies
- Available funds to address liabilities and payables
- Immediate cash in case the business owner dies
- Estate Settlement (the corporation will form part of the deceased owners’ assets)
- Probably cost
- Hospital expenses and funeral
- Income for family
- Retirement Fund for the business owner. Pay yourself first. Always have enough money for your retirement even when you’re no longer running the business. They hardest place to be is to retire without funds to sustain your lifestyle. Creating income resources is very important when you retire soon.
- Retirement Fund for employees
Protect the business owner, protect the company – Key Man Insurance
What if as a business owner, you set aside 10% of the business capital to create a funding mechanism that addresses all the financial worries you get in case of uncertainties? In essence, you are also diversifying your assets. Instead of placing all your gross profit in the bank, what if you create another outlet to spread the risks in uncertainties to protect the business, the business income and the business owner’s family’s well-being.
How Does It Work?
Let us take this scenario as an example:
Sample Business: Cafe
Capital Upon Set-up: Php 500,000
Budget to create Emergency Funding: Php 50,000 (10% of Php500,000)
Business Owner Profile: Male 40 years old
In this scenario, the 40 year old business owner sets aside 10% of his capital (Php 139 per day) for his emergency funding. If the business owner dies anytime today until he reaches age 88, his family/ his business will get a guaranteed amount of P500,000 + Fund Value. If the business owner continues his business until age 65 (retirement age), he actually has funds set aside to aid for his retirement expenses. Assuming the business owner is still living at age 88, he gets his maturity benefit, which is equivalent to his fund value.
Would You Rather Plan Ahead? – Key Man Insurance
Key man insurance is a very practical way to:
- Protect your business from uncertainties
- Ensure your business has emergency funds to continue running without you
- Create a retirement fund for yourself
- Create funds to help settle your estate
- Protect your business and families financial needs
Your business is the fruit of your hard work. It is your legacy. Don’t let ignorance and lack of proper planning take away the legacy you’ve built.