What would happen to your business if the owner, a director or a key team member became ill or died suddenly? Doesn’t bear thinking about, does it? But you should, because there are special insurance products designed precisely to address those ‘hope-they-will-never-happen’ situations – situations which sadly do happen to businesses every day up and down the land.
The products all come under the umbrella term of Business Protection.
Key Person insurance
All businesses have at least one employee or director who is crucial to their operation.
Key Person insurance is a type of life insurance bought by businesses on the life of an employee whose illness or death would seriously jeopardise the profits of the business. That could be a chief executive, a top salesman/woman, finance director – or even the owner of the company. The policy provides a cash injection to help find replacement staff and cover lost profit streams. Some banks require the cover to be in place when accessing finance – also known as business loan protection. A Critical Illness cover option is available.
Premiums are based on age, health and lifestyle but it is the business that pays the premiums and would receive any pay-out.
Partner / Director / LLP Share Protection
Losing an owner can have a big impact on the day-to-day running of a business and could result in financial problems.
Partnership / Share Protection helps business owners keep control of their company if one of them dies or is diagnosed with a critical illness. This type of life insurance will ensure there are funds to help the remaining shareholders purchase the shares and retain control of the company, avoiding a period of uncertainty or family beneficiaries arguing with other owners about the direction of the business or, for example, the shares being bought on the open market by a competitor. A Critical Illness cover option is available.
Relevant Life Insurance
This is a term assurance plan which is purchased by an employer to provide a death in service benefit for the beneficiaries of an individual director / employee. Generally, it’s tax-efficient for both employer and employee. Premiums are tax-deductible for the employer and as the policies are set up under a discretionary trust, any lump sum pay-out is tax-free and not subject to inheritance tax.
The level of cover is usually a multiple of salary and any bonuses of the individual in question and any pay-out is made tax-free to the deceased’s dependants.
Summary:
Key Person and Shareholder Protection are set up for the benefit of the business, ensuring the company can continue if an important employee or director dies or is unable to work.
Relevant Life insurance covers an individual and is set up to help the insured’s family meet their living costs after his / her death.
Next steps
Who to cover? How much? How long? What could be the tax liability?
It is important to speak to a Brunsdon Financial Adviser who will be able to offer tailored advice based on your particular circumstances and the circumstances of your business. Different providers will offer a variety of rates and levels of cover so it is important you seek qualified financial advice to ensure you get the cover that it right for you and your company.
This information is an overview of business protection and is not intended as a definitive guide or specific advice. For further information please speak to your Brunsdon financial Adviser.
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