While we are all still recovering from the pandemic implications, it’s worth taking the opportunity to look at your business – and making sure it has the protection it needs.
Of course, you have the insurance protection you need for your buildings, your contents, key equipment and your vehicles. You must have statutory cover for your employees and for public liabilities. But you may be missing out on protection for your most important asset of all.
Your key people are responsible for your success. Without their skills and knowledge, you could be in serious financial difficulty, and the death or serious illness of a key member of your team could spell disaster for your company. If they were a shareholder or partner, it could mean losing control of your business to their beneficiaries.
There are various options available, many of which attract tax relief:
Relevant Life Plan – a tax efficient way to provide cover
While it is important to provide protection for your business in case of a premature death, the real cost is human.
Relevant Life cover is a cost effective way for small businesses to provide life insurance cover even if they’re too small to set up a group scheme. It’s tax efficient because in most cases, premiums can be treated as an allowable business expense by HMRC.
The company takes out a Relevant Life Plan which insures the employee’s life and is put in trust to beneficiaries that the employees nominate. With Corporation tax relief, no additional income tax or NI to pay, it can be an affordable way to provide essential protection.
Key Person Protection – safeguarding the real value in your business
Key Person Insurance is basically a life insurance policy taken out on the key personnel within your business. These are usually the owners or partners – but they can be anyone whose knowledge, skills, connections or reputation are central to the continued success of the business.
It is a perfectly standard life insurance policy, with one important difference. The premiums are paid by the business, and the business will be the sole beneficiary, collecting the payout if the individual covered was to die or suffered a specified critical illness.
The loss of a key person in a small business often spells the end of the business. The purpose of key person insurance is to help the company survive.
The company can use the insurance payment to keep afloat until it can find someone to take over from the person they have lost. If a replacement can’t be found, and the company has to close down, the payment should make it easier to pay debts, distribute money to investors and pay severance to employees.
Critical illness cover would also help the company continue to provide a salary, even though the person insured could no longer contribute to the profits.
Business Loan Protection – ensuring debt need not become a problem
The loss of the person, usually a director who has guaranteed a company loan is particularly serious for any business. Most lenders will demand that the loan must be repaid immediately on the death of the guarantor. While it may be possible to approach the deceased’s executors for the money, doing so is distasteful. Even if the funds might be forthcoming without legal proceedings, they are unlikely to be available for months.
Business Loan Protection can offer a solution. It can provide the funds to help a business pay an outstanding overdraft, loan or commercial mortgage, should their guarantor die or is diagnosed with a terminal or critical illness.
Business Loan Protection is usually arranged when the debt is taken out. Under the cover it provides, a sum equal to the outstanding debt could be paid to either the business or directly to the lender.
Share Protection – helping you keep control of your business
The death of a key colleague can be bad enough. Finding that their death means that their share of the business passes to their beneficiaries can make things even worse.
They may have careers or business interests of their own, and see your business as a burden.
You might resent having to discuss key decisions with people who know nothing of your business.
Arranging Share Protection could provide the solution. Share Protection is insurance cover designed to allow the surviving business partners to buy the shares from the family or other benefactors. A legal agreement is made to enable the sale and purchase by the survivors of a stakeholders share in the business.
It takes away the emotional element of what can be a very difficult process, and safeguards who controls your business.
To discuss insurance cover, or any other aspect of business finance, please contact our specialists at Continuum.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable Protection products or investment strategy, you should seek independent financial advice before embarking on any course of action.