Before March 2020, few people in the UK could honestly admit to having heard of the word furlough, let alone using it in their everyday conversations.

But eight months later, such was the meteoric rise of this previously obscure term that it was named a Word of the Year by the Oxford English Dictionary.

Our embrace of ‘furlough’ – which is descended from a German military description of a soldier’s approved absence from duty – is linked to its role as a lifeline for many individuals and businesses facing the unprecedented personal and financial shock of the pandemic. Today, with the worst of those times behind us, the word might have dropped out of our vocabulary again, but there is evidence that it has left a lasting mark.

Through the need for schemes such as furlough, businesses have been awakened to the real possibility of sudden, major disruption and how this could impact their ability to trade. As such, they are placing renewed emphasis on continuity, resilience and risk mitigation – processes that encompass consideration of many hypothetical scenarios, such as what would happen if employees in pivotal roles were suddenly unavailable to work?

Safeguarding your position with business protection

A consequence of this post-pandemic shift is a recognition of the value offered by business protection insurance – something that has taken on greater significance given by the wider backdrop of uncertainty caused by escalating costs and the ongoing conflict in Ukraine.

Legal & General’s State of the Nation Report 2021 suggests that four in ten businesses wished they had been better prepared to withstand the impact of the pandemic and half of respondents (47%) said they were now more likely to consider insuring their business loans and putting protection in place. An important motivating factor here is concern over the possible loss of key people, with a significant 59% suggesting they would cease trading within 12 months without a crucial member of staff.

For business owners in this situation, Key Person Protection can provide helpful reassurance. A key person is defined as someone who is integral to the company in such a way that their loss, through long-term illness or death, would have a direct negative impact on operations and, potentially, profitability. There might be one or more key persons within a given company.

Key Person Protection is essentially a form of life insurance that provides a business with a degree of financial protection from the worst effects of such a loss. The lump-sum pay out can ease the pressure and costs associated with seeking a replacement or implementing alternative strategies to ride out periods of disruption. It may simply act as a financial buffer if the key person affected by illness is able to make a subsequent recovery and return to work.

Partnership Protection and Shareholder Protection are designed to offer businesses similar assurances against the unfortunate and unforeseen loss of influential people within the company.

In the case of Partnership Protection, the surviving partner or partners of the business are protected against the risk of a deceased or terminally ill partner’s ownership stake being relinquished to dependants and potentially compromising how the company can be run. Instead, relatives can be paid an agreed amount, control of the business stays with the remaining partners, and any effect on business continuity is limited.

Along the same lines, Shareholder Protection provides the means to swiftly manage the agreed transfer of a director’s shareholding in a company upon their death. This is achieved via a Share Purchase Plan, which sets out the terms for surviving shareholders to purchase their shareholding from the deceased’s estate, with the cover providing a lump sum to support the purchase.

Valuing people as assets

Despite the protection that such policies can provide, companies remain more likely to have cover in place to safeguard against the loss of physical assets rather than the staff who are so critical to their continued success.

This can be seen in recent research from Vitality, which indicated that a large proportion of companies (37%) are not yet covered by protection policies despite the same research uncovering that 30% of respondents know of a business that has had to close following the death or serious illness of an owner, key employee, or business partner.

The conflict between these findings hints at the fact that companies are, understandably, focused on managing the various tasks and pressures of day-to-day business rather than apportioning their valuable time to resilience, continuity and contingency plans.

But with the pandemic and terms such as furlough barely out of the rear-view mirror, it is important to remember that change can happen quickly and at any time. Having robust protection in place won’t stop that change happening or eliminate unexpected challenges from the horizon, but it can help provide a more comfortable and clear view of how to move forward.

The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management or its associated representative shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.