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Business protection insurance

You might think of a protection policy as something that is taken out by a private individual, to protect against the adverse financial consequences of death or illness.

Moneysworth is, however, equally well placed to provide advice to businesses, both large and small, on steps they should take to protect themselves against the adverse consequences of an unexpected or unwanted event.

We can assist companies across all business sectors, and we can help everyone from sole traders to small partnerships and companies and much larger enterprises.

Why you need business protection

The reasons why you should consider business protection are many and varied. If a key person within your business was to pass away, or contract a serious illness, then:

  • You might want to buy back their share of the business, ensuring you retain control of the company
  • There might be concerns over whether this unfortunate event will lead to a reduction in revenue and profit
  • The loss of that person’s technical expertise, experience, entrepreneurial flair or ability to strike deals and contracts could be devastating. A large proportion of UK businesses employ less than 10 people, where there might be little opportunity to replace a key person’s skills from within at short notice
  • You might need to incur significant costs in hiring and training an internal or external replacement
  • There might be a need to repay a business loan immediately, especially if the person who has passed away was the guarantor. 75% of UK businesses have some form of debt

Who might be a ‘key person’?

A ‘key person’ could conceivably mean any of your directors, managers, significant shareholders or technical experts. It might refer to anyone who generates significant revenue or who acts as a ‘figurehead’, ‘public face’ or ‘ambassador’ for your company. It could be the person for whom the very idea of them taking a holiday, or handing in their notice, fills you with dread! 

Whatever your balance sheet might say, savvy business owners know that their people are their greatest asset.

What forms of business protection are available?

Moneysworth can assist in arranging policies such as:

Shareholder and partnership protection. If a shareholder or partner dies, then their share of the business will be inherited in line with what is in their will. If they don’t make a will, then it will be distributed in line with the laws of intestacy, which usually means it will pass to a close relative.

It’s quite likely that you won’t want a shareholder’s relative to continue to own a significant share of the company in the longer term, so your instinct is likely to be to buy back the shares that they have inherited. It may also be the preference of the deceased shareholder’s relative that you buy them out, especially as they may be faced with an emotional dilemma at having inherited the shareholding.

You, or your business, may not, however, be able to produce the funds at short notice for such a large outlay. It may also be impossible to borrow a sum of money for this purpose, or the cost of doing so may be prohibitive. A shareholder protection plan is a type of life insurance that will provide you with the funds to purchase the inherited shareholding.

Business loan protection. This is another type of life insurance, which ensures funds will be available to pay off important business loans should a key person die or become critically ill.

Key person insurance. This type of policy provides a cash lump sum should an important person within your company die or become seriously ill. You can then use the funds to cover loss of profit and/or the costs of hiring and training a replacement.

Relevant life insurance. In many ways, this works in a similar way to personal life insurance, in that a specified sum is paid out if the insured person dies during the term of the policy. With relevant life cover, however, the premiums are paid by the insured person’s employer. The policy does not form part of the insured person’s estate for Inheritance tax purposes. Premiums paid by employers aren’t normally considered to be a benefit in kind, so they’re not subject to income tax or National Insurance.

Executive income protection. Individual income protection works on the basis that a replacement income is paid to the insured person should they become unable to work due to accident or sickness. Executive income protection is taken out by the business, and it is the business that receives an income should their key employee become unable to work.

Want to find out more?

If you are interested in business protection, then contact Moneysworth today.