Business protection made easy

1. Business protection made easy Catherine Trimble Business Development Manager For intermediaries only

2. Our business protection story Business protection made easy Our business is about investing in the future and helping people achieve a lifetime of financial security. • 2017 • Launch of key person replacement service • More documents added to our Protection document service • 2001-2015 • Business Protection online applications • Original Business Protection toolkit • Launch of Relevant Life • Relevant Life trust improved • 2016 • Launch of health and wellbeing service • Launch of Protection document service • 2018 • Launch of faster, smarter protection online service • Relaunched Business Protection toolkit • 2019 • Business Protection and Relevant Life added to our improved online service • Launch of Policy Plus • New signature-free Relevant Life trust

3. The business protection agenda Business protection made easy Developing professional connections Why business protection? Succession planning Continuity planning Employee benefits - relevant life Employee benefits - executive income protection Why Aegon?

4. Business protection made easy Continuity planning

5. Continuity planning - learning outcomes Business protection made easy By the end of this section you’ll: • understand how sales tools can help you highlight the importance of continuity planning to your customers; • be able to clearly articulate the risks business owners face, and • have a better understanding of the tax position for key person cover.

6. It won’t happen to me Cancer Business protection made easy Life changing events are taking place every four minutes in the UK. 363,000(approx)new cases of cancer in the UK every year - that’s more than 990 every day.3 4minutes Every four minutes someone in the UK dies from cancer.1 1 in 2 people born after 1960 in the UK will develop cancer at some point in their lifetime.2 1CancerResearch UK, Cancer mortality for all cancers combined, May 2019 2Cancer Research UK, Lifetime risk of cancer, September 2018 3Cancer Research UK, Cancer incidence for all cancers combined, August 2019

7. Business protection made easy It won’t happen to me Cardiovascular disease (CVD) Life changing events are taking place every three minutes in the UK. 170,000(approx)deaths each year caused by CVD - an average of 460 people each day. 3 minutes Every three minutes someone in the UK dies from CVD. 28% CVD causes 28% of all deaths in the UK. Source: British Heart Foundation, CVD statistics UK factsheet – April 2019

8. Business protection made easy Opportunity Commercial insurance brokers Professional connections Business owners Workplace

9. ``` Business protection made easy 9 Fixed assets (tangible) Share capital Reserves (retained profits) Investments Cash Debt Debtors Stock Business Protection contingency plan Employees Creditors Overheads Sales Contingency plan Owner’s aims Family Solutions Continuity Succession

10. ``` • High • Impact • Low • Low • High • Probability Business protection made easy 10 Risk assessment – potential impact? • Flood • Health and safety issue • Bad advice • Computer crash • Fire • Public liability • Employer’s liability • Compliance disaster

11. ``` • High • Impact • Low • Low • High • Probability Business protection made easy 11 Risk assessment – potential impact? • Flood • Health and safety issue • Bad advice • Computer crash • Fire • Public liability • Employer’s liability • Compliance disaster • Key employee leaves • Key employee dies • Key employee illness • Director/Owner dies • Director/Owner illness

12. ``` Business protection made easy 12 Continuityand succession risk assessment • Probability of at least one partner or director dying before age 65. Source: actuaries.org.uk/learn-and-develop/continuous-mortality-investigation/cmi-mortality-and-morbidity-tables Based on mortality data of 55% of TMN00 mortality table (1999-2002 experience, published in CMI Working Papers 21, 2006. Temporary assurances, male non-smokers at 5+ years' duration).

13. ``` Business protection made easy 13 Continuityand succession risk assessment • Probability of at least one partner or director dying before age 65. 32% 18% 14% 11% 7% 31% 17% 14% 11% 7% 30% 16% 13% 10% 7% 23% 12% 10% 8% 5% Source: actuaries.org.uk/learn-and-develop/continuous-mortality-investigation/cmi-mortality-and-morbidity-tables Based on mortality data of 55% of TMN00 mortality table (1999-2002 experience, published in CMI Working Papers 21, 2006. Temporary assurances, male non-smokers at 5+ years' duration).

14. ``` Continuity and succession risk assessment Business protection made easy 14 • Probability of at least one partner or director getting a critical illness before age 65. • Source: actuaries.org.uk/learn-and-develop/continuous-mortality-investigation/cmi-mortality-and-morbidity-tables • Based on morbidity data of 102% (CMI working paper 75, calendar years 2007-2010) of SC04 morbidity table, male non-smokers at 5+ years' duration.

15. ``` Continuity and succession risk assessment Business protection made easy 15 • Probability of at least one partner or director getting a critical illness before age 65. 75% 50% 42% 34% 24% 74% 49% 41% 33% 23% 72% 47% 40% 32% 22% 61% 38% 31% 25% 17% • Source: actuaries.org.uk/learn-and-develop/continuous-mortality-investigation/cmi-mortality-and-morbidity-tables • Based on morbidity data of 102% (CMI working paper 75, calendar years 2007-2010) of SC04 morbidity table, male non-smokers at 5+ years' duration.

16. ``` Business protection made easy 16 Risk to profits – the issues How long would a business survive if it lost a key person?

17. ``` Business protection made easy 17 Risk to profits – the issues How long would a business survive if it lost a key person? 52%of businesses would stop trading in under a year. Source: State of the nation’s SMEs report, sixth edition - Legal & General, 2019

18. ``` Business protection made easy 18 Four steps to business continuity Create (and explain)thesolution Identify who’s ‘key’ 2 3 1 4 Quantify the financial risk Implement the solution

19. ``` Business protection made easy 19 Identifying key employees • Does the employee… • Havea direct effect on turnover or profit? • Have business contacts vital to the company? • Carry out a vital sales function? • Play a pivotal role in a major project? • Have a bearing on the credit rating of the business with you or other investors?

20. ``` Business protection made easy 20 Identifying key employees • Have the owners: • Made personal guarantees? • Made any loans to the business? • Any impact on the ability of the business to repay any third-party lending?

21. ``` Consequences Business protection made easy 21 • Fall in market share • Unable to pay loans/credit status • Brand damage • Litigation • Fall in share price • Liquidation • Business failure

22. ``` How much cover? Business protection made easy 22 Payroll-based approach Multiple of salary (5 to 10 times) (Key person’s salary ÷ total payroll for business) x gross profit x expected years to recover from the loss of the key person or Up to 3 x gross profit attributable to the key person or 5 x net profit attributable to the key person Lump sum benefits

23. ``` Business protection made easy 23 Liability audit referral Liabilities to third parties £ + Liabilities to owners £ + Loss of profit x term to recovery £ + £ One-off expenses = Total £

24. ``` Business protection made easy 27 Liability audit Case study Company name – Johnstone and Pearson Ltd Last year’s gross profit – £1.25 million Directors – Charles Johnstone and Dan Pearson Salesman – John Smith Overview of responsibilities Both Charles and Dan are equally key. Charles is the brains behind the business and Dan is responsible for sales. Dan recruited John 18 months ago and appointed him as senior salesman. The recruitment process took 12 months. When John joined he brought with him a valuable list of contacts, which has allowed him to make a substantial contribution to overall profit. This is a fictional example. It doesn’t represent a real customer.

25. ``` Business protection made easy 28 Liability audit Case study • What are the liabilities to third parties? • Business bank loan A: £250,000 • Business bank loan B: £150,000 • Overdraft facility: £100,000 – always fully used • What are the liabilities to owners? • Both have outstanding directors’ loan accounts in credit: • Charles: £120,000 • Dan: £100,000 This is a fictional example. It doesn’t represent a real customer.

26. ``` Business protection made easy 31 Liability audit Case study Dan Charles John Johnstone & Pearson Ltd £0 £250,000 £250,000 Liabilities to third parties £0 £100,000 £120,000 + + + + Liabilities to owners £360,000 £360,000 £120,000 + + + + £50,000 £50,000 £25,000 Loss of profit x term to recovery + + + + £760,000 £145,000 £780,000 One-off expenses = = = = Total This is a fictional example. It doesn’t represent a real customer.

27. ``` Business protection made easy 32 Case study - liability audit • John Smith • Age 46 • Salesman • £145,000 life protection 5 years renewable • Total monthly premium £17.17 • Dan Pearson • Age 57 • Company Director • £250,000 life protection, 10 years £54.51 • £100,000 life protection, to age 65 £22.86 • £410,000 life protection, 5 years £64.77 • Total monthly premium £142.14 • Charles Johnstone • Age 58 • Company Director • £250,000 life protection, 10 years £61.01 • £120,000 life protection, to age 65 £27.78 • £410,000 life protection, 5 years £71.64 • Total monthly premium £160.43 Initial commission payable £184.96 Initial commission payable £2,096.93 Initial commission payable £2,316.94 This is a fictional example. It doesn’t represent a real customer. Source: Aegon, 7 June 2019. Assumes 155% Lautro.

28. ``` Business protection made easy 32 Case study - liability audit • John Smith • Age 46 • Salesman • £145,000 LICI, 5 years renewable • Total monthly premium £90.51 • Dan Pearson • Age 57 • Company Director • £250,000 LICI, 10 years £345.29 • £100,000 LICI, to age 65 £130.25 • £410,000 LICI, 5 years £476.14 • Total monthly premium £951.68 • Charles Johnstone • Age 58 • Company Director • £250,000 life with critical illness (LICI) protection, 10 years £382.69 • £120,000 LICI, to age 65 £165.00 • £410,000 LICI, 5 years £528.99 • Total monthly premium £1,076.68 Initial commission payable £15,263.78 Initial commission payable £1,069.37 Initial commission payable £13,763.42 This is a fictional example. It doesn’t represent a real customer. Source: Aegon, 7 June 2019. Includes total permanent disability. Assumes 155% Lautro.

29. ``` Business protection made easy 33 Policy structure Life of another basis Corporately-owned policy Policy proceeds paid directly to the company Company pays the premiums No trust needed

30. ``` Tax position Business protection made easy 34 Conditions to be met for premiums to attract tax relief and proceeds to be treated as trading receipts. Short-term insurance Employer/employee relationship To meet loss of profits No significant shareholding This information is based on our understanding of current taxation law and HMRC practice, which may change. The tax treatment and value of any tax relief depends on the individual circumstances of each client and may be subject to change in future.

31. Don’t forget… Business protection made easy Price Pledge Immediate cover facility Instalment option

32. Thank you PROT384748/07/19