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What is business protection?
Business protection could help client owned businesses continue to trade should a key person or business owner die or become terminally or critically* ill. Proceeds from the policy could help ensure that key individuals are replaced, corporate debt is protected and shares from the deceased partner's/director's estate are purchased.
Many believe arranging business protection to be a lengthy and complicated process. But actually, the principles are similar to any other type of protection.
The most significant differences are:
- Business protection generally incorporates higher sums assured.
- A claim may be paid to a business, not a family member.
* If critical illness cover is chosen as an additional option
Types of business protection
There are generally four main types of business protection:
- Key Person Protection (profit protection)
- Partner/Director/LLP Share Protection
- Business Loan Protection
- Relevant Life Plan
As with all types of insurance, limitations and exclusions apply.
Types of policy
- Term assurance
- Term assurance plus critical illness cover
- Whole of life protection plan
All policies can be set up in Trust which, at the very least, speeds up payment following a claim, but more importantly could have significant taxation benefits.
What is Key Person Protection (Profit Protection)?
Key Person Protection (Profit Protection) helps safeguard a business against the financial effects of death, terminal illness, or critical illness* of a key person.
The loss of a key person may result in reduced sales, loss of profit/turnover, wasted time, recruitment costs, and the disruption of development plans or increased workloads for the remaining staff.
* If critical illness cover is chosen as an additional option.
Who is a 'key person'?
A key person is an employee whose death or continued absence would affect the profits of the business. Key people are individuals whose skills, knowledge, experience or leadership are important to a business' continued financial success. Examples of a key person include, but are not limited to:
- Sales director
- IT specialist
- Managing director
- Head of product development
- Technicians and R&D personnel
How does it work?
Key Person Protection (Profit Protection) is life assurance or life assurance and critical illness cover (if chosen) written on the life of the key person but owned by the business so that any money due becomes payable to the employer. The business pays the premiums. This applies to both Limited Companies and Limited Liability Partnerships. With a partnership, the policy is written on an own life basis and may be placed in trust for the benefit of the other partners.
If your business has an individual or individuals who are fundamental to its success, you should consider Key Person Protection (Profit Protection).
What is Partner/Director/LLP Share Protection?
The loss of a business owner may destabilise the business and can quickly lead to financial difficulties. Partner/Director/LLP Share Protection means if the worst does happen, the remaining partners/directors/members could stay in control of the business.
How does it work?
In the event of a business owner dying or becoming terminally or critically* ill, Partner/Director/LLP Share Protection can provide a sum of money to the remaining business owners. This means that in the event of a valid claim the policy could pay out an amount sufficient to help purchase the deceased or critically* ill partners/directors/members interest in the business.
Ask us about our business valuation calculators, which can help highlight to you, the required Insurance value of your business, and assist you with establishing the required sums assured for individual shareholders or partners.
* If critical illness cover is chosen as an additional option.
What is Business Loan Protection?
The loss of the person(s) who have guaranteed a loan is particularly serious for a business. Business Loan Protection helps your client pay an outstanding overdraft, loan or commercial mortgage, should the guarantor die or become terminally or critically* ill.
* If critical illness cover is chosen as an additional option.
How does it work?
Business Loan Protection is life assurance (sometimes life assurance and critical illness cover) written on the life of an individual or individuals. When a valid Business Loan Protection claim is made, a sum equal to the outstanding debt could be paid to either the business or directly to the lender.
Relevant Life Plan
HMRC confirm that 'disguised remuneration' rules (introduced from 6th April 2011) do not impact on whether premiums to our Relevant Life Plan are an allowable business expense.
What is a Relevant Life Plan?
A Relevant Life Plan is a term assurance plan available to employers to provide an individual death in service benefit for an employee. It is designed to pay a lump sum if the person covered dies or is diagnosed with a terminal illness whilst employed during the term. A Relevant Life Plan is paid for by the employer.
Who is it aimed at?
- Employers looking to provide 'death in service' benefits, but with too few employees to set up a group scheme.
- Directors wishing to provide their own individual ‘death in service’ benefits without taking out a scheme on all employees.
- High earning individuals, such as directors, where ‘death in service’ does not form part of their ‘lifetime allowance’ (£1,073,100 2022/23).
Relevant Life Plans are not available where there is no employer/employee relationship. For example, sole traders, equity partners of a partnership or equity members of a Limited Liability Partnership.
What makes it cost effective?
Relevant Life Plans are similar to most other types of life cover except they aim to provide a tax efficient benefit provided by an employer for an employee.
Why choose a Relevant Life Plan?
- A big saving can effectively be made on life cover, as a Relevant Life Plan can work out much cheaper than a typical life policy.
- When it comes to financial underwriting, some providers need supporting financial evidence at lower levels of cover, while others may not ask to see financial evidence until the benefit exceeds even as much as £2.5 million.
Relevant Life Plan Trust
A Relevant Life Plan is designed to be written in a discretionary trust at outset, with the employee’s family and dependants as beneficiaries.
