Have you ever stopped to think about what might happen to your business if you lost one of your key members of staff? You might already have insured your premises, equipment, and stock, but what about the people who play the biggest part in your organisation’s success?
For example, if your best salesperson became critically ill, how would the income they bring to your business be replaced? Does anyone else have the same expertise? Even a small amount of cover is better than having none at all. Without any business protection you could end up risking everything you’ve worked so hard to achieve.
Business Protection is insurance that safeguards three core business elements:
Ownership – If a partner or shareholder dies (or is diagnosed with a critical illness), the proceeds help the remaining owners to buy the affected business shares. Without protection, the surviving owners could lose control of the business, impacting ongoing success. Business Protection to protect ownership is written as Share or Partnership Protection.
Profit – If a business loses a key person who influences revenue, a protection policy provides a firm with a cash injection, helping replace lost profits and possibly recruit a replacement. Key Person cover can be used to protect profits.
Debt – Key Person cover can also be used to clear debt (sometimes referred to as ‘loan protection’). Without a cash injection, investors, and creditors (such as the bank) may call in debts if they think the business can’t pay them off.
Benefits of business protection:
- Provides a financial safety net in the event of the death or critical illness of a key person.
- Provides funds to the remaining partners or shareholders so that they can buy out the critically ill partner or shareholder or purchase the deceased’s shares from his or her estate, ensuring business continuity.
- Ensures that the deceased’s family or the critically ill shareholder or partner receives a fair value for their share of the business.
- Provides funds to ensure repayment of a business loan in the event of death or critical illness.
There are various elements to consider when setting up business protection, including how premiums are paid and treated for tax purposes. For example, premiums on life polices taken out by employers for key person protection can be allowable deductions and get tax relief if certain conditions are met.
Tax relief is generally available providing:
- The sole relationship is between employer/employee.
- The cover is for loss of profits; and resulting from the loss of service of that employee, and the insurance policy is annual or short term.
Relevant Life Cover is also a tax-efficient life insurance policy, providing death-in-service benefits to individuals.
Is it time to review your current plan?
Perhaps you already have insurance for your key people in place. There are now products on the market that offer a ‘menu’ facility, which means you can pick and choose different types of cover in one plan to suit your exact needs and budget. This can give you more comprehensive cover and can even help reduce the cost.
If you would like to discuss your business protection needs or any other area of financial advice in more detail, please give us a call on 01604 621421.