Business Protection Policies
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What is Business Protection?
Making sure that your business is adequately covered if the worst should happen to you or one of your Key employees is of vital importance to you, your family and your fellow work colleagues. The two policies that you would want to look at seriously to protect your business are Key Person insurance and Shareholder Protection if your business is a limited company.
Although they have been around for some time now it’s still surprising how many companies are still unaware of the benefits available by taking out a Relevant Life policy. As well as it being a nice thing to do for your employees and therefore helping with staff retention, there are also some excellent tax benefits available for Company Directors who take out a Relevant Life Policy. Most Directors are unaware that these policies are available so we’ve included some more information further down the page as to what they are and who they cover.
We can give you a quote via email if you would like one but due to the complexities of Business Protection policies and the importance of getting your recommendation absolutely right, we’d highly recommend going through things over the phone or face to face with one of our expert advisers.
Simply complete the enquiry form on this page and one of our advisers will call you back to go through your exact requirements. We have business protection specialists all over the country, so if you would prefer one of them to come and see you to go through things in person, please just let us know on the enquiry form and we’ll happily arrange that for you. For more information on the different types of business protection policies please read on below.
What is a Relevant Life Policy?
A Relevant Life Policy is used in order for a small to medium business employer to give their individual employees a death in service benefit. It is more beneficial for those businesses who don’t have enough employees to create a group scheme and it is often used to insure the business owners in a highly tax efficient manner.
These policies are owned by the business itself. The policy is written into trust and will pay out to the employee in case of a critical illness or terminal illness or the beneficiaries of the employee if the worst was to happen and they were to die. However, you have to ensure that all of the policies are up to date as otherwise there would be no payout.
Those who have a group scheme in place can still arrange additional Relevant Life Policies. This is normally used for high-earning employees due to their tax efficient nature.
Relevant Life Policies are very tax efficient as it is seen as an allowable business expense and could save a company Director more than 50% in tax.
Up until very recently, Relevant Life Policies would only pay out on death or diagnosis of being terminally ill. However, there are even more savings to be made for Company Directors due to the fact that some providers have started to include Critical Illness into their policies as well.
What is Shareholder Protection?
Shareholder Protection is a form of business insurance. This is put into place to protect all the Shareholders within the business, as well as their respective families.
If a shareholder dies or is diagnosed with a critical or terminal illness then this insurance will pay out a lump sum to make sure that all parties are adequately looked after. The money received can be used by the remaining shareholders to buy out the seriously ill or injured shareholder or if the worst was to happen the deceased Shareholders family members.
If this type of cover wasn’t put in place it could lead to a family member who has no knowledge of the business demanding to have their ex-partners say and involvement in the company. It could also lead to the family being financially crippled at a time when they have potentially lost the family’s main bread winner.
To avoid this from happening, a cross option agreement would be recommended to go alongside the Shareholder Protection policy that we would put in place. This will mean that in the event of the worst happening the remaining Shareholders could buy out the deceased’s shares, meaning that the estate has the money from the insurance policy and the remaining Shareholders can continue running the business as they see fit.
What is Key Person Insurance?
Key man Insurance or Key Person Insurance as it is also known is a life insurance policy taken out by a business to protect it in case it lost any of the key people within it. It is used in order to protect the business if anything were to happen to the most important people involved within the business and is extremely important to small to medium sized businesses.
This is used so if the owner or a key employee were to die or suffer from a serious illness or injury then this insurance would pay out the lump sum laid out within the contract. It is usually only taken out on the most critical employees within the business. This money is then used to keep the company running and paying their expenses until that key person can then be replaced or returns.
In some cases without this Key Person insurance then if a key employee were to die then it could ruin the company. This is because the owner is normally the person who holds the business together. Either through the accounts or the employees, especially in a small business with few employees.
You can get various amounts of cover depending on the importance of the employee or the size of the business. The amounts range from £100,000 to £1m plus.
However, if the business has no other employees there is often no need to take out this type of insurance. If the business is owned by a sole person and if that person was unable to work through death or ill health, in theory, it is then just a matter of closing the business down. However, it would still be advisable to consider Key Person insurance. This is as even in this instance due to the impact it could potentially have on any surviving family members that may rely on the income from the business. It could also be important to make sure any personal guarantees that may have been taken out on the family home are catered for.
There are many different options and scenarios regarding this type of cover. This is why we’d recommend talking through your individual circumstances with one of our highly trained advisers. For more information complete the enquiry form or alternatively call 01332 821 340 and we’ll be happy to go through things in more detail for you.
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