In this inaugural podcast appearance, Gary Lucas, an independent financial advisor from Burlington Associates, discusses the critical aspects of business protection. He highlights the importance of various insurance products including death in service, income protection, private medical cover, and critical illness cover for employees. Gary also delves into key person cover and share protection for business owners, explaining how these measures safeguard businesses and ensure continuity. The podcast provides insightful advice for employers on how to implement these protections effectively and underscores the significance of these benefits in employee recruitment and retention.
00:00 Introduction and Welcoming Gary
00:57 Setting the Scene: Gary’s Background
02:00 Understanding Business Protection
03:22 Employee Benefits: Death in Service
07:58 Employee Benefits: Income Protection
12:04 Employee Benefits: Private Healthcare
19:58 Employee Benefits: Critical Illness Cover
25:26 Business Owner Protections: Key Person Cover
27:54 Business Owner Protections: Shareholder Protection
34:37 Conclusion and Contact Information
Listen on Spotify or Apple Podcasts
Connect with Gary Lucas on LinkedIn by clicking here – https://www.linkedin.com/in/garyjlucas
Connect with Daniel Welling on LinkedIn by clicking here – https://www.linkedin.com/in/daniel-welling-54659715/
Connect with Adam Morris on LinkedIn by clicking here – linkedin.com/in/adamcmorris
Visit The MSP Finance Team website, simply click here – https://www.mspfinanceteam.com/
We look forward to catching up with you on the next one. Stay tuned!
We created It’s a Numbers Game Podcast to help MSP owners learn and understand how to build and maintain a financially healthy MSP business. In this podcast series, MSP business owners like you will learn the fundamental steps, the tips and tricks, the dos and don’ts to achieve MSP financial growth.
Transcript:
Dan: Gary, thanks. Thanks for joining us. Mu much appreciated and welcome to the show.
Gary: Well, thank you very much. It’s actually my first podcast, so thank you for inviting me. It’s always interesting and exciting to do something new outside your comfort zone, so thanks for the invitation.
Dan: You shouldn’t have said that because we’re gonna make this a bit prickly for you. Well, as we might have warned you Adam is known for for Chuck in Chuck in a tricky question in every now and then, but perhaps he’ll be a bit kinder to you this time.
Gary: ah, deep joy.
Dan: So to today our topic is is business protection generally and in the green room, we would, we were talking about just some of the examples of that pr. Perhaps you could kick us off if you were if you were a networking event or in a pub chatting to a business owner.
Dan: Maybe just walk us through some of the questions you’d ask and and then we can sort of dive into each part as, as as appropriate,
Gary: yes, of course I can. Well if you don’t mind I’d just like to sort of set the scene so, so everybody knows who I am and where we come from. Well, my name’s Gary Lucas, I’m an independent financial advisor, so I offer independent impartial advice. I work for a company called Burlington, which is up in the city, right by Liverpool Street.
Gary: We’ve been going for about 20 years, we’re regulated directly by the FCA, and well, I personally, I’ve been an IFA since I left university, which is 30 odd years ago. That’s all I’ve ever known. And I quite really quite enjoy sitting down with people and seeing if I can help them. It’s a pleasure to serve.
Gary: But as a company, we we advise personal individuals and we also advise SMEs as well. So we’ve got quite a few small to medium sized enterprises on our books. Mainly sort of in around the Southeast, because we’re, a lot of us are living in Surrey, Kent. Essex and Hampshire, so face to face meetings are generally in the south east, but, you know, with Zoom and, uh, Teams nowadays, we can speak to anybody anywhere in the UK.
Gary: So. But moving on to companies. So as I said in the green room, I think a lot of your your clients, et cetera, be working hard, trying to build their business. And although they feel they can have a lot of control over a lot of factors, such as recruitment, turnover, profit, et cetera. The one thing we, none of us can really control is our health.
Gary: So where we come in is we sort of have discussions with. employers about, you know, those terrible what ifs conversations to see that if things do go wrong, you know, there’s a safety net, there’s a money being released, a parachute payment, whatever you want to call it, which comes into the business which supports the business whilst they’re recovering or, you know, God forbid, they fall off the perch if they’re no longer around.
Gary: So, but we approach it, there’s two sort of things which people want to talk about. First one’s employee benefits. So it’s sort of looking after the employees, death in service, income protection, your private medical cover and your workplace. And then as an owner, they may be interested in their own bespoke death in service, private medical coverage, share protection.
Gary: So if one of them dies and making sure the shares are retained by the person who’s still got working for the business, still got skin in the game and key person. So in essence, that’s a nutshell of what we do.
Dan: brilliant. And I guess maybe if we start from the the employee benefits and then we can work our way back up to the to the rest of the business. So, uh, where do we start then? You mentioned death in service.
Gary: Yeah, so, I mean, I think employers, they, typically, I think a lot of your clients are sort of in the IT sector, and my sort of understanding of you know, the progression of the life cycle is we find a lot of IT people start as employees, they learn their skills, Then they may become an IT contractor, and then they start to take on some staff maybe, and build up a business.
Gary: And over time, you know, you’ve got the responsibility of looking after those employees. And I think there’s a study by Legal in General in 2021, which said, as an owner of a business, making sure your employees are happy, and maintaining their well being, their mental well being, and their physical well being, is like the second biggest stressor to them.
Gary: So, you build up this business, things are good.
Adam: I thought for a moment you were gonna say is a good thing, so I’m That’s okay. I’m glad you didn’t say that. That’s okay.
Gary: No. So, and when employee benefits comes in, it sort of, you know, it helps out with that part of it. So, I just sort of going for the, well, and sort of the service we look towards providing is just sort of sitting down with these business owners and saying, you know, What is it you’re trying to achieve?
Gary: I know most people have that sort of conversation, but is it a case of, you know, you’re trying to recruit and from bigger companies, so you need to have the cue loss of death in service, income protection to make yourself look good, otherwise they may bypass you, or is it because, you know, God forbid, their dad died when they were young, the family had no money, there’s a terrible situation, and they want to make sure none of their employees faced with that situation.
Gary: So we always have these sort of big why questions and why is it we want to do it, you know, what’s your motivation behind it? And then obviously we look at budget and then it sort of, we create a menu of what this is, what’s available for you. And so the first one is death and service, which is, you know, it’s quite simple, you know, the life cover payouts, tax free to the beneficiaries.
Gary: Fortunately, they don’t have to die at work. But they just have to have a contract of employment with the company. And should the worst happen. There will be this tax free lump sum paid out to whoever they expressed in their wishes and The good news is, you know, statistically people don’t die that young nowadays, which is good news But there’s always that, you know, someone knows somebody who
Adam: Just a sort of detailed question on that, Gary, do you need to go through the, you do a health assessment of everybody in order to, in order for the you know, the statistical guys to pull this together? Or is this just like a flat rate? How does it work?
Gary: well what it’s quite simple from an administration point of view You provide your staff data names dates date of birth and they provide a unit rate for the next year So every thousand assured there’s a cost xp per thousand and people as soon as they sign that letter of as soon as they sign that contract of employment and they start work they’re entitled to three or four times their salary.
Gary: Now there is a a level with that four times goes above that limit. They have to do a small bit of underwriting for the bit above that. But and then once a year the insurance companies ask for another snapshot of what the employer data looks like. So people can come and join. You don’t have to notify anybody.
Gary: The underwriting is very light. Unless you breach the this sort of underwriting limit. And well, I think, you know, the average, as one of these studies said, the average cost per employee per year for a death in service scheme is 144 a month. It’s like relatively small beer for, uh, for, you know, for what could be a very good benefit.
Dan: Did you say 144 a month for a year? A
Gary: Per year, per employee.
Dan: Okay, so say 12 a month basically. So yeah, that sounds that sounds pretty uh, pretty easy to budget for and and is exactly as you say a good additional point to it. A act as a a, you know, a benefit of the of employment or if you’re already employed a nice thing to help retain if you are not, if you’re not recruiting.
Dan: So, and and as you say, generally four times four times salary. Um, interestingly, you mentioned. Income protection as well for employees.
Gary: Yes!
Dan: I’ve not come across before. So that’s a, that’s of interest
Gary: Well, yes, I mean, unfortunately, statutory sick pay is now down to 116 per week. So, you know, most people are enjoying a net salary of 2, plus a month. And I think there’s two and a half million people of working age who are unable to work due to long term illness. And unfortunately that figure’s got bigger.
Gary: And so the way income protection works is very similar to a death in service where you provide details of the staff, or staff data, names, dates of birth, salaries. And then we run off and we get some quotes. And There’s normally a deferred period, so once someone’s had an accident or illness or unable to work, the biggest claimers are and well, depression mental illness, knees, backs but it could be anything.
Gary: It could be loss of sight it could just be, well, it could be depression long term, it could be it. Cancer, heart attack, which keeps people off work for a while, but there’s normally a deferred period whereby Someone has the accident, but the income doesn’t come in and that deferred period is traditionally either a month or three months But if they’re still unable to work after that three month basis Then the insurance company will pay the company up to a maximum of 75 percent They won’t pay the full hundred percent because, you know, people have an incentive to come back to work and they’ll carry on paying that until the person can return to work or deemed to be able to return to work or retirement age. So you know, from an employer’s point of view, you know, if you want to look after your staff you know, if anything goes wrong their liability may just be capped at their own cash flow for a month. And then the insurance company picks up the policy thereafter. So, and it’s one of those things where, you know, if you’re off work for five years with an illness, do you know what, you’d probably like to be off work, unfortunately, all the way through.
Gary: So, it’s a nice thing to have. From a cost point of view, as I said, the death in service was 144 a month. This, it, this comes out at roundabout, so, per employee per year. This comes out at, for the average, you know, It is 113 per employee per year, so it’s just over double the cost of life because chances of claiming it are obviously significant.
Adam: Sorry, Gary, just a second. I
Adam: Just checking with Dan there just to make sure it wasn’t just me. So just to be clear, because you just said double there. So, so the income protection is one, one free per person
Gary: no, sorry, 313, sorry
Adam: Ah, 3
Gary: Yeah, sorry.
Adam: Right. Good. Good. We’re there.
Gary: Good job. I’m not
Adam: No it’s important because it’s easy to miss these figures.
Adam: And same question again, Gary, I’m sorry to ask this, but you know, if I’m 65 and smoke 60 a day and drink a lot, you know, is that price could be higher? Okay,
Gary: well it all depends on the The insurance company looks at the universe of the company So if there’s a whole lot of you who are 65 and like a whiskey and a cigarette then the universe of the company is going to be quite expensive. But if
Adam: So if there’s one outlier and the rest of us go down the gym, we’re good.
Gary: yeah, that’s fine. That’s fine. Yes so yes, And you know Obviously from the insurance company’s point of view, they want to get you back to work as soon as you can. So, anybody who does have an illness, there’s rehabilitation, you should try to physiotherapy, etc. Anything they can do to get you back to work.
Gary: You know, most people want to return to work, so it’s a very useful benefit to have around. I must admit, regards to the the nature of this, I think people, employers generally, first of all, like to have a death in service scheme. Income protection is not as popular as as some of the other benefits, but I think it’s a lot of it’s probably due to the running cost of it.
Dan: and it seems to me that actually segues nicely into the next protection, which is of course healthcare. But as we’re talking about it, it makes perfect sense that you would include that, that’s as well, because if someone’s got healthcare, they’re not necessarily going to fall into evenings and weekends as that as the affliction, or indeed, if they have an operation, you know, there could be a recovery period.
Dan: And and so it, it almost seems like there should be both built, you know, they should come together almost.
Gary: Yes, yeah, very much so. Yes, I mean, that does nice sort of linked on to private health care, which, you know, traditionally people with, if you say Bupa, people sort of generally understand what private health care is. And apparently there’s 7. 47 million people waiting for routine hospital treatment on the NHS at the moment.
Gary: And that’s a growing figure again. So, the idea of, I mean, from an employer’s point of view, if you’ve got somebody who can’t work because they’ve got a small tumour in their spine, which means they can’t sit down or they can’t drive or something like that, to have somebody off work waiting three months for a consultant and then another year to have an operation is not a good thing.
Gary: So, from an employer’s point of view, if you can have, bring in some private medical cover there. Then, you know, God forbid any employee has any issues, they can go and see a doctor. Within a couple of days, and he’s normally a GP doctor, so if you can’t get through to your own doctor, you can log on, online, whatever time of day, and if a doctor says you need to go and see a consultant, you go and see a consultant within two weeks, and then they book you into a nice private hospital, your own room, Sky TV, and a menu of sandwiches.
Gary: But the most important thing is that you’re back at work as soon as you can. So, and since COVID, we have had a lot of intake of employers looking to arrange, well, I think employees have nagged their employers actually to say, well, you know, We can’t rely on the NHS unfortunately, even though they do a great job.
Gary: But so, what we look, what we do there is we look around depending on how many staff the company’s got. Depends on the underwriting, you can get, whether it’s a strict underwriting because you’ve only got a few staff, but if you can get up to 25 or 30. You can get join a plan you don’t have to worry about any of your pre existing conditions.
Gary: It’s beautiful. And then Once we get the we’ve chosen the level of cover, which is they’re happy with the employer Then we just horse trade the various providers trying to get their price down for as much as possible and most health care nowadays has full inpatients, now patients. So you have to go to hospital or you have to have a consultant after that.
Gary: It’s covered. We look for advanced cancer cover. Cancer is such a, you know, One in two of us, they say, now is unfortunately going to suffer cancer at some point. So, some of those providers are more enthusiastic to use the more expensive drugs and hormone replacement, wigs and cancer screening and reconstruction, scalp cooling and that sort of jazz.
Gary: But it’s also in their mental health and dental and optical. So, you can make it very expensive. Or you can have a sort of quite basic plan and I think vitality of quite an interesting proposition because you get big discounts off. Going to the gym. They want to keep people as healthy as much as possible.
Gary: And if you go and use your Nectar card at Sainsbury’s and buy some good old fashioned fruit and veg, you get points off your next year’s premium. So, and if you can prove that you’ve gone to the, every time you go to the gym, you build up points. Points mean pounds off. So, I know people, I mean, the Millennials are really engaging into this and it’s a good thing.
Gary: So, some people just want the best so they just say look I just want in event if anything goes wrong I want best which Generally Bupa is there, thereabouts, is a not for profit organization and willing to sit the hand in the pocket and and pay for everything, really.
Dan: I, I have to say that it must be over a. Decade ago now 12, 12, 13 years I had a hernia, which is, you know, not uncommon and had private healthcare cover and, you know, absolutely agree that the. The experience was you know, far different to what I would imagine it would be without I mean, I’ve stayed in worse hotels even without being attacked and and and cut open.
Dan: But yeah importantly, though, there was a. Rehabilitation period afterwards. So I did want to choose the time when I had the operation so that it was going to cause the least impact. And and, you know, the whole process was was was very good. You know, if you’ve got to have it, then you want to do it in that in that format.
Dan: So, and it does, it takes. It takes stress out of it for the employee as, as much as for the employer as well. So, I know this may be a harder number to to to give as a guide. But by my reckoning, we’re around the 50 pounds a month per employee level at the moment.
Dan: If we were to offer. Death in service and and income protection. So what would the private health sort of range be?
Gary: well, I think it’s, the minimum is around about 100 a month now which and it can go up to, say, 300 a month, depending on excesses and how much you want to build into it. From an employee’s point of view, it is a benefit in kind. So they only have to pay the tax and national insurance, so they don’t feel the full pain of the hundred.
Gary: And employers just need to be a bit aware that, you know, these things do go up, medical inflation, I remember, was about 15%, so you need to have a budget. Think about it. We can reach an annual basis. We try to horse trade The premiums down as best we can but there is a sort of an increase in that with death and service and income protection They’re not benefiting kinds that can be offset as a business expense In most circumstances unless you’ve got a very small company so that’s okay.
Gary: But yeah But I yeah, I think one of those things once you’ve as you found out once you’ve claimed on it You don’t look back. It’s just You know, as long as the premiums are realistic and reasonable, sorry, that’s fine.
Adam: Do these policies include mental health conditions as well?
Gary: They do to some degree, they don’t you get some of them up like 45 days of mental health assistance and so, yes they do, and, you know, there’s quite a few ways to get mental health support because a lot of these provide, employee benefits providers also have an employee assistance program.
Gary: Which is more of a telephone based or online based, where they you can speak to consultants, medical consultants, health consultants, mental health consultants, also legal you’ve got disputes with landlords and that sort of jazz. So you normally get one of two of those tagged along as a sort of a added
Adam: Yeah. I mean, it seems to me with the younger workforces, we tend to have that there’s less of the physical ailments. I mean, there are the dodgy knees and the dodgy backs but there’s certainly loads of the mental health and that kind of hotline or you know, remote based support. I can certainly see, you know, that being up there in terms of.
Adam: You know, it’s efficacy.
Gary: Yes. And you know, back in our day you, if you wanted to go and see a doctor about anything you had to. You wanted to go and see them face to face, but the millennials, they don’t want to see people face to face.
Adam: Well, no indeed. Sometimes they just want a text based service. Don’t they? So,
Gary: Yes But it’s not just the young I mean, you know, we’re over I can see by I can see videos of you guys we’re over a man of a certain generation and There’s a lot of pressure on us so we, every so often we we wobble and so it is available to them as well. It’s a good thing. The last employee benefit is critical illness cover well protection, which works exactly the same as life cover, but pays out in the event of suffering a critical, defined critical illness, where there’s sort of normally about 20 odd definitions of payment, but the big four are.
Gary: Heart attack, cancer and stroke. That’s three. And MS, sorry, that’s the last one. And they account for 82 percent of all claims. So, if an employee unfortunately does have any of those, there’s a lump sum payment to clear off mortgage or reassess their lifestyle as well. Unfortunately, that is quite expensive because critical illness claims, heart attack cancer claims are getting worse.
Gary: So, but yes. So, I mean, our job is just to, you know, have a discussion with people, you know, just find out their why, what they feel would be a good, and we just cost it up and, You know, they’re adults, they can make their own decision about what sort of premiums they can have. And then we, I guess we’ve got duty of care to make sure we can shop around and
Adam: And just for comp, just for completeness, then that would be roughly how much?
Gary: Ah, I knew you’d go, I was just about to ask you that. I haven’t got a full part figure. Well, to be honest with you, I think that’s actually going to be round about the same price as the income protection. It’s going to be around about some it’s not far off normally. It’s normally double plus of the death in service.
Adam: Okay.
Dan: Okay. That’s probably better than I was expecting it. As as you were taking a deep breath and shuffling papers like I was ready for a sticker shot there. But I guess just before we move on to the business owner. Differences slash additions to that.
Dan: I guess by my rough maths give or take a ty typical scenario, a blend of cover may maybe 150 pounds a month. As a as an investment per person 1800 pounds a year. Is it generally considered that providing or that 1800 pounds is. Best presented in organizing and delivering those benefits versus 1, 800 just extra on the basic pay, for example, do you get a sense of from your clients or just generally within the industry?
Dan: How’s that perceived?
Gary: well, I think actually the the employees perceive those benefits to be more than the 1, 800. So they might perceive if you’ve got death in service, income protection, critical illness, they might perceive it to be worth 3, 000, etc. So, but fortunately the way insurance companies work, the insurance company wants everybody.
Gary: They want a universe of everybody. They don’t just want the unhealthy ones. It has to be presented that everybody in the company plays a game. But so I think you, you get quite a big bang for your buck for the perception of the benefit for the employee’s point of view. And it’s got this recruitment thing again, you know, if you’re trying to recruit, recruit people who have already had these benefits being part of a medium or a large company to come down to this, they may ask you for a lot more than 1800.
Gary: To replace it because they think it’s worth three or five and there’s that kudos as well, isn’t it? You know It’s a scrimping if they haven’t got the employee benefits. Where else? Are they sort of trying to save money on? Where my previous employer I had all these things up and running so I don’t have that quite
Adam: Yeah, and I was just going to say and if your employee, well, if you’re unfortunate enough to invoke the policy in your business, because of an unfortunate situation, the other employees will see that in action actually, and they see, you know, a well regarded employee being looked after and that can make a big difference actually, couldn’t it in terms of the overall you know, culture.
Gary: yes. I mean if they’re there to die, you know, the process is very bad, etc But you know, we’ve made a payment out to them or if they have a an illness which just keeps off work for a year, you know, They can see that the employer will know that employee can come back not just cut off deal with yourself.
Adam: indeed, yeah. And I think that’s, you know, obviously you hope you don’t have to invoke the policy but I think that I can see that, you know, helping an awful lot.
Gary: Yeah, and yeah
Dan: And just keeping an eye on the on the clock maybe the protections we’ve already talked about apply to business owners, employees, as much as employees anything we should be aware of that are, that would be different for the owners before we get into the other protections that would apply to owners.
Dan: Okay.
Gary: Well, the formula not really. I mean, you can scale it up so you can have the senior managers get six times or eight times salary death in service or they could have different level of private medical cover because they’re, you know, they’re more senior or they’re willing to pay more than on the benefiting kinds and people who can, who, who can’t afford to do so much.
Gary: So, yeah, we can structure it in different levels and For different levels of recognition within the company.
Dan: Okay. All right. That’s interesting. And and some of our larger size business listeners will be they’ll have senior leadership teams, they’ll have boards. And and so it’s interesting that you could scale it up and that could again, be part of the benefits of progression within the business.
Dan: So, so then we come to perhaps the. The protections that relate specifically to senior leadership and to owners in the business. We’ve we’ve of course talked about providing a benefit to the to the the employees and their families. But, perhaps if we start off with key man cover or key person cover, I should
Gary: Key person cover. Yeah. So a key person is all about identifying who’s a key person in the company. Anybody who you feel that will cause a reasonable effect on your profits within this year, or you need someone you need to replace from a recruitment point of view. It’s normally sort of senior managers, but not always.
Gary: Some of your employees may have a very good relationship with. Some of the some of the customers, which you might want to ensure. So we’ll have a look at the loss of profits whether the cost of recruiting somebody and also any loans, if there’s any loans out, out there. Some of the banks may want to say, well, you know, if X, Y, and Z happens, something happens to the chairman, et cetera, are we still going to get our money back?
Gary: So it’s a case of just having discussions internally. find out who’s a key person find out what is the potential loss in profits, and then having discussion with an insurance company what, you know, getting them on side so they think there’s going to be a financial loss. And taking out a straightforward term assurance plan, perhaps with renewable option every five years, just if they’re still there, and so they can renew it without having to do any more medical underwriting.
Gary: But normally it’s the owner is normally. We paramount for that. Yeah, so it is quite simple. The tax premiums can be offset against corporation tax depending on the size of the company. If the premiums offset against corporation tax, the payment will fill part of like turnovers, so will be taxed or you forgo having the premium offset against corporation tax, but the premium, but the payout would be sort of tax free into the company.
Gary: So yeah, so it’s sort of internal conversations and then trying to get an insurance company to agree with your stance
Dan: that’s a that’s interesting. That’s a, an interesting tip there that that it’s you’ve got the option of whether you take the corporation tax benefit on the premiums or on the payouts. And of course it’s there’s a gamble there isn’t there in terms of if you need to invoke it, then probably appreciate not losing a quarter of it to to the to the to, to corporation tax.
Dan: So, and yeah, Correct me if I’m wrong, but I think that leaves a single remaining protection around protecting the the shareholders in in, in, in a, in an unfortunate situation.
Gary: yes, so this is why this is something which is often overlooked and actually is from my side of the hedge It’s actually quite more interesting really than setting up, but basically If you had two people, 50 percent of the company And God forbid, say, one of them dies. So, depending on your articles of association, normally, those shares of the deceased person goes to their family.
Gary: So, the remaining shareholder who’s probably working really hard in the business, you know, doubly hard even, because they haven’t got the other shareholder, every time he he or she has to distribute a dividend, etc. 50 percent has to go to the spouse’s, sorry, deceased family, etc. Which, you know, most owners may be okay for one or two years, but ten years down the line they’re thinking, well, why am I still working so hard, where 50 percent of it goes out to somebody who hasn’t even been in the business for ten years.
Gary: So what we look towards doing is having some form of clean break, whereby the person who’s died he ensures his life. So when he dies, some money from the life insurance goes off into a trust. The shareholder who’s still around can use that money to buy the shares off the person, the deceased’s estate.
Gary: So the deceased estate, from their point of view, they get it’s all quite beneficial to them. ’cause unless that money was being provided by a life insurance company, there’s probably not enough money around to buy their shares. The person who’s died, you know, he’s been building up work and build up value in the business and he wants that to go down to his family.
Gary: But if there’s no money to buy for those shares, you know, that’s not a good outcome. And the person who’s left remaining, well, that’s great for them because then they get hold of those shares so they can run the business, you know, work as hard as they can and it comes to them. But there’s a cross optional agreement whereby the person who’s dies.
Gary: Family has the option to insist the remaining shareholder buys the shares of them. The remaining shareholder has the option to insist the deceased estate has to sell the shares to them. It’s an option, so if they both agree for whatever reason, they’re not going to exercise the option so they can carry on like that.
Gary: Very rarely happens. And then where the money comes from to buy those shares is through this life assurance payout so and The so you have to have a conversation with the you know, what’s the value of the business? It’s quite subjective thing but you have to create a value for it and then you ensure your life to the back through the value of your half of the shares and then and yeah, it’s very often overlooked but It’s very useful.
Adam: And what is the specific term for that
Gary: It’s called share protection there’s many technical ways you can do it. You can have the company buys its shares back off the deceased people and then councils their shares. It all depends on how your memorandum, the articles association are set up. But in principle, you ensure the value of your shareholding.
Gary: And someone else has to buy it off you. And,
Adam: And presumably it’s directly correlated. The cost is directly correlated to the value of the business.
Gary: yes. Although, you know, you normally get someone who’s more healthy. One of the shareholders maybe pays a lot more for his premium. And then there’s someone
Adam: Oh Dan. So you’re, yeah, you’re at risk here, buddy. So, you know, I mean, you know, seriously, you have to pull yourself out.
Gary: Hey.
Dan: And yeah. I mean, I certainly advocate this that there’s a lot of, uh. Time and effort that goes into, to building a business and and you a, you want to make sure that value goes to your estate and equally to your business partner that that they don’t end up in business with your estate.
Dan: And and, you know, that’s not necessarily who they went into business with. So, so both parties are effectively protecting the others. So. All parties
Adam: And the survivor, the business survivor. You’ve got the double whammy of using your, losing your business partner, but not getting your 50 percent of the business back. So, you know, it’s, it hurts both, doesn’t it? So, yeah,
Gary: and life cover is, I wouldn’t say silly cheap, but it is quite low nowadays, especially if you’re only insuring yourselves for a five or ten year term. So remember I was saying, you know, not many people die, you know, pre retirement nowadays, but some do. And so, you know, it’s like a couple hundred quid a month.
Gary: Fix each for you know, a million quid payout to just square this off and you know We’ve all life cover all protection. I always say, you know, I hope this is gonna be the biggest waste of money You know a spender spend it on, you know, I hope you say I wasn’t worried I didn’t get anything from that and that’s the way you to look about business You all these sort of things.
Gary: It’s just get it set up, stick it in the bottom of the bottom of the cabinet and hope you, you don’t have to claim a foot, review it every so often just to make sure it’s still fit for purpose.
Adam: And this is more and more reason why MSP businesses out there need to be building good, profitable, strong businesses so they can afford, you know, some of these bottom end. Costs that are just there and they continue from year to year and they don’t impact the EBITDA too much. You know, again, it’s probably, it’s easy, isn’t it?
Adam: To forget about all these additional little add ons and they all mount up. And so, yeah, I think it’s just another good reason to be looking always to be building that strong, profitable business.
Gary: Yes. Yeah. Right. So, and you know, the big thing about this, it is one of those topics. It’s all too easy to stick in the old, it all too difficult pile. And and you know. It’s only when something goes wrong that or to a friend or family etc. I think, right, I really need to get this sorted out.
Gary: So we advocate, you know, speak to somebody who sort of knows his onions and can help you through that journey as painfully as possible and and then go through that journey as quick as possible in a comprehensive way and then get back to to doing what you do.
Dan: And and he said, you know, this should be the biggest waste of money ever. But actually if it gives you peace of mind then there is a value that you derive from it. without having to necessarily invoke and get the get the actual benefit. The soft benefit is that you do know that you’re protecting your business partner, your family, and and and that that certainly would give me reassurance and, you know, for the sorts of sums we’re talking about you know, it’s very affordable as Adam says, if you’ve built a profitable business that, that can that, that can sustain the the continued spend.
Dan: So, we, we are at an overtime Gary. I’m sure we could talk to you for another hour or so. And perhaps we’ll have you back to talk again at some point in the future. We normally offer. Offer a shameless plug at this point in time, but I think you’ve kind of already done it.
Dan: But but if anyone wants to reach out to you how’s the best way to get in touch.
Gary: Go to our website, ww Burlington fs for financial services dot com or I guess, come via your website. You, someone hopefully you’ll we’ll or email Gary, at burlingtonfs dot com and we hope to help. Thank you much.
Adam: Very good. Very good for your first podcast. Well done.
Gary: for being kind to me, Adam.
Dan: Cheers. Thank you. All the best.