Business Protection policies are quite simply life insurance policies but written through the business. This allows limited company directors to offset the premiums against your turnover, hence conveying a tax advantage. But more importantly than this, the policies provide an opportunity to protect the business against the financial impact of losing key employees, another partner or director and help ensure your family are financially protected. Limited company directors, if your life insurance isn’t written through your business, you’re missing an opportunity.
Limited company directors, there are important questions you need to ask yourself.
- How would my family get by financially if I were to pass away or suffer a critical illness?
- How would my business get by financially if a key employee were to pass away or suffer a critical illness?
- How would my fellow business partners or directors continue if I were to pass away?
- How would I continue to live if I was unable to work and my income stopped due to an accident, sickness or any disability?
The following policies are the solution to each of the above crises. They can provide financial peace of mind to you, your family and your fellow partners and directors.
Relevant Life Cover
Relevant life cover offers financial protection to you, as the director of your limited company, against death, critical illness cover or both. A relevant life policy would provide a tax-free lump sum to help you get through a critical illness and/or prevent those you leave behind being left with a financial burden on top of the emotional struggle.
People can typically insure themselves for up to 25x their annual remuneration on a level policy. Remuneration includes salary, bonuses, benefits in kind and regular dividends. However, the policy can also be used to cover a mortgage. It be arranged on a ‘level’ or ‘decreasing’ basis to cover an interest-only or capital repayment mortgages respectively.
Key Person Cover
Key person cover offers financial protection to your business by insuring the life of one of your vital employees. These are typically people in a high position who have great knowledge of the working mechanisms of the business and couldn’t just be replaced. The policy provides protection against death, critical illness cover or both.
A key person policy would provide a tax-free lump sum to to cover the cost to your business of losing an employee and the additional costs of hiring and training a new employee up to the same level, whether that be for the short-term or long-term. Small businesses are often heavily reliant on the work of a couple of staff members and large businesses often have staff in specialist positions with deep inside knowledge. In both cases, hiring another individual simply wouldn’t solve the problem. Key person cover bridges the gap mitigating the financial impact on the business and can keep your business thriving.
People typically insure the life and health of the key person for the cost of losing them. It is difficult to forecast the exact amount this may cost and therefore insurers provide calculators which, based on the business numbers, give an indication of the required level of insurance.
Shareholder protection offers financial security to business partners if one of you were to pass away. The policy pays out a tax-free lump sum following death or diagnosis of a terminal illness for any director.
What would you want to happen to your shares if you were to pass away?
- If you leave them to your business partner, your family is not financially protected.
- If you leave them to your family, your business partner may become stuck not being able to make any decisions to take the business forwards.
People typically arrange a shareholder protection policy together with a specialist business trust which is legally binding. This set-up ensures the funds are paid to the surviving business partner(s) on the condition they are used to purchase the shares from the deceased family. This allows the remaining business partner(s) to take full control of the business with the proceeds of the policy. It also ensures the family are financially protected but prevents them from involvement in the business or selling to an outside investor.
People typically insure themselves for their share of the current value of the business. Insurance providers provide calculators to work out the approximate value of the business if this is not known.
Executive Income Protection
Executive income protection is one of the newest products on the market. This is specifically for you, as the director of your limited company, to provide cover against being unable to work due to an accident, sickness or any disability. If you’re the primary income earner for your household and an unforseen event means you’re unable to work, how will you and your family continue to live and pay the bills?
This policy is written through your business and, on claim, will pay out to your business allowing you to continue paying yourself. You can be insured for up to 80% of your standard earnings each month and the pay-out can begin from day 1 or it can wait for up to a year – whatever suits you.
For all the above policies, monthly premiums are paid for by the business providing a more tax efficient insurance than a standard policy in your personal name. As always, the level of cover you choose can be adjusted to suit your needs and budget. If you’ve got more queries on business protection, please feel free to get in contact. If you’re a business owner without cover or your current policies aren’t written through your business, we can sort you comprehensive and cost-efficient cover.