What is it?
Essentially there are 5 strands to business protection:
Shareholder Protection / Ownership Protection
Shareholder Protection or Ownership Protection is insurance which provides the owners of the business with a cash sum to buy the share of a co-owner who dies or becomes seriously ill. This protects the stability of the business ownership and provides the estate or shareholder with a lump sum quickly and cleanly.
Key Person Protection
Key Person Protection insures against the loss of key personnel in the business either from critical illness or death. This type of insurance provides a cash sum which is treated in a similar way to a trading receipt so protects against the loss of profits that could ensue as a result of the loss of the key person. This insurance supports the bottom line and can be a key factor in ability of the business to continue trading.
Relevant Life Insurance
Relevant Life Insurance essentially provides an individual death in service benefit. Relevant Life policies could suit higher paid directors, business owners and other employees who may want high levels of life cover. This is a business cost, the company pays the premiums, they are not treated as a benefit in kind, so they wouldn’t be included in P11D calculations. This can deliver a significant saving, particularly for a higher rate taxpayer. Employee Serious Illness cover can also be used to compliment this and protect against serious illness which proves to be life changing.
Loan Protection insures a loan can be repaid on the death or critical illness of a key member of the business. Loans will often be guaranteed by shareholders or investors and this should be protected. Lenders might also link key persons in the business to their propensity and confidence to lend, which could be withdrawn should a critical illness or death occur. Similarly directors often have directors loans which should be protected.
Group Schemes – There are three main elements to group schemes:
- Group Life (Death in service) – Pays the estate of the employee should they die whilst in service.
- Group Critical Illness – Provides benefit in the event of a critical illness.
- Group Income Protection – Pays out a proportion of a regular income if an employee cannot work due to illness or injury and satisfies the definition of incapacity.
Who is it for?
All businesses are advised to consider business protection. Business protection has specific benefits and each strand is very specific:
Shareholder protection is aimed at all shareholders – this protects the shareholders in the event of a death or critical event and pays the estate of the deceased or shareholder who suffers critical illness and enables the business to move forward.
Key Person insurance protects the business from the effects of losing a key staff member
Relevant Life insurance provides the family or chosen beneficiary of an individual with a lump sum in the event of death in a similar way to a larger death in service policy. Similarly, Employee Serious illness cover pays benefit to the individual.
Loan Protection is aimed at all businesses who have loans supported by key individuals. It protects both businesses, estates and guarantors from the consequences of death or suffering a critical illness.
Group schemes can be set up for all or key staff members. This can be for life, critical illness and / or income protection.