Business Protection

Services > Business Owners > Business Protection

A business owner, or a key individual involved in the running of a business, knows only too well the pressures on their shoulders of ensuring that their business remains profitable. From the strategic decisions that have to be made behind closed doors to the daily reactive nature of the role, not to mention the technical knowledge required of whatever industry that they operate in.

What would happen to the business if one of these people were to die? Who would step up to that role? How would they be replaced? Would the business have the funds to find a replacement and remunerate them to the appropriate standard? Perhaps most importantly, would the business be able to carry on trading?

“53% of businesses would cease trading within a year if a key person died or became critically ill

With all these questions and uncertainty around the future of a business in the event of death of an owner/ key personnel, why are so many businesses not covered?

Research shows that 53% of businesses would cease trading within a year if a “key person” died or became critically ill. Yet, only 28% of new businesses established in the last two years have any kind of business protection. We find that a lot of the time, business owners are just not aware of the advantages of having business protection or the types of protection available to them, even though they are aware of the effect their own death can have on the business.

Business protection provides life cover for the life assured whilst the policy itself is owned by the business. This results in the cost of the protection being borne by the company, and not the individual insured. In the event of a claim, the sum assured can be paid to the business directly, or to an individual beneficiary, depending on the type of cover. The purpose of the cover is to help a business continue in the event of death by providing funds to meet the costs of replacing the employee/owner.

What are the types of plans available and when can they be used?

  • Shareholder protection
    • Used to provide a company with funds to buy back the share of the company owned by a deceased shareholder
    • Ordinarily, a shareholder’s share of the business will be passed to their family following death. The potential effects of this can be that someone who has never been involved in the running of the business or may not have the relevant qualifications or experience is now a shareholder.
    • Policy is owned by the company and the shareholders are the lives covered. The sum assured is paid to the company in the event of a claim
  • Relevant life plan
    •  Ideal for providing a death in service benefit for an employee without having to take out a group policy
    • Cost of the cover is paid for by the company but benefit is paid to the chosen beneficiary of the life assured
    • There must be an employer and employee relationship, therefore is not suitable for sole traders, partners of a partnership/limited liability partnership
    • Aimed at employers who want death in service for it’s employees, directors looking to provide death in service for themselves or high earning directors where death in service does not form part of their lifetime allowance
    • Tax efficient since the cost of cover is a business expense
    • Does not provide critical illness cover
  • Key person cover
    •  Aim is to protect the business against financial loss of a “key person” on their death or them being unable to work due to them suffering from a critical illness
    • Policy is owned by the company, is paid for by the company and the benefit is paid to the company on claim
    • There is no legal description of a key person therefore can be put in place for any employee who the company see as key to their functioning

Deciding on which type of protection is best for you and your business can be difficult. Understanding the benefits and options you have can be confusing.  This is where we can help. Contact us for a review of your business where we can help establish tax efficient ways of being able to meet your aims and objectives.

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