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To put it simply, Business Protection Insurance is a form of Life Insurance. It offers a financial safety net if a key person, shareholder or director is lost due to:
A Policy would pay out a cash lump sum which can be used to help keep your business afloat during a difficult time.
If you lost a key member of staff how would you cope? Could you pay off any business debt? Would you have anyone to replace their skill set? Could you buy back any shares?
We know it’s not nice to think about, but it’s vital that you do. According to Legal and General’s State of the Nation report, 6 out of 10 business would stop trading within 12 months of losing a key person.
That’s why it’s so important to protect your business with the right type of Business Protection. It can:
By putting protection in place, you can help to secure your businesses future if the worst were to happen. It provides peace of mind and allows you to focus on running your business without unnecessary financial strain.
There are several different types of Business Protection Insurance. We will discuss these a bit later. However, each are very similar in the fact that they will pay out a cash lump sum should a key employee be unable to work due to accident, sickness or death.
In the event of losing a core member of your team, the cash payment will be paid to your business. This can then be used to help ensure your business continues to run successfully, whilst you navigate a challenging time.
Each type of Business Protection Insurance can provide different levels of cover. This includes:
Business Protection Insurance is vital for every business, regardless of size or industry. The unexpected does happen, and having the right protection in place can be the difference between the survival or downfall of a company.
Samantha Haffenden-Angear
Independent Protection Specialist
When it comes to Business Protection Insurance, there are three main types of cover:
Depending on your circumstances, you may decide to take out one or more of these types of cover. In order to know which is best for your circumstances, it’s important to understand each product and how they differ. To help you do this, we look at each in more detail below.
Keyman Insurance, also known as Key Person Insurance, protects your business against the loss of a vital employee. The key employee doesn’t need to be a director or shareholder. In fact, they could be anyone, for instance:
While your key employees could be anyone who is vital to your company, it’s often suitable for directors or management figures.
Key person protection is designed to provide business continuity and financial security. It offers a lump sum payout in the event that the individual dies, or suffers a serious illness.
For more information, you can read our full Guide to Keyman Insurance.
Shareholder Protection Insurance is one of the lesser known types of Business Protection Cover. However, this doesn’t make it any less important.
When a business owner dies without Shareholder Protection, their shares typically form part of their estate. These shares are often then inherited by a family member.
This can cause a number of problems, for example:
To retain control of the business, the remaining owners will need to raise funds to buy back the absent shareholder’s shares. Depending on how much capital you need, this isn’t always possible for small businesses.
It’s here that Shareholder Protection Insurance comes in. By insuring the shareholders’ lives for the value of their shares, it provides the necessary funds to do this.
The payout allows the surviving owners to buy back the shares of an owner who dies, or suffers a critical or terminal illness.
For more information, you can read our full Guide to Shareholder Protection.
The final kind of Business Protection Cover is Business Loan Protection. Companies take out this cover in case a person responsible for repaying commercial debt dies or becomes critically ill.
As your organisation grows, you might take out different loans to fund this growth. For instance:
Without this kind of insurance, your organisation could be declared insolvent if it can’t repay the loan. This is why, when taking out a business loan, many lenders and investors require you to arrange a Business Loan Protection policy.
In the event of the death or critical illness of a person responsible for repaying the debt, the policy pays out so you can repay the loan.
For more information, check out our full Guide to Business Loan Protection.
Please be aware these business insurance policies are designed for limited companies and partnerships, they are not designed for sole traders.
When business owners think about protecting their company, they first think of their valuable assets. These tend to include vehicles, premises and stock.
While nearly everyone insures these, many forget about what’s even more valuable — the people behind the business. No matter the size of your company, there’s usually at least one or two key individuals the business couldn’t do without.
The scary reality is, that the risk of these individuals passing away or developing a critical illness is probably greater than you think.
It’s easy to put off thinking about our mortality, but it’s important that we don’t. Unfortunately, the unexpected does happen, so it’s crucial that we plan for it.
We’ve put together the below table using data from the Office of National Statistics (ONS). It represents the chance of a generally healthy male at various ages dying in the next 10 years.
Risk of Death in 10 Years | Age | Risk of Death |
|---|---|
35 Years Old | 1 in 62 |
45 Years Old | 1 in 29 |
55 Years Old | 1 in 12 |
Using this data, we developed our own Life Expectancy Calculator. You can use this to work out your own personal life expectancy.
While we understand this can be upsetting to think about, it’s important to consider. The alternative often leads to a lack of protection when you, your business partners, or your employees need it most.
If you’re considering Critical Illness Cover, it’s also important to consider the risk of disease and incapacity. This can influence the kind of cover you choose to purchase.
We’ve developed our Risk Reality Calculator, which assesses how likely you are to become critically ill or unable to work. Again, it’s vital to consider this to inform your choices.
Whatever the individual’s role, losing them can cost more than just recruiting and training fees. Business Protection can cover:
A Business Protection policy can also provide the funds to:
In essence, this kind of cover is there to assure business continuity if the worst should happen.
SPECIALIST TIP 🤓
Please be aware these policies are best for limited companies or limited liability partnerships. They are not designed for sole traders.
The cost you’ll pay depends largely on the amount of cover you need. This will vary depending on the kind of protection you opt for.
For instance, Business Loan Protection needs to cover the total amount of any company debts. However, a payout from Key Person Cover needs to offset the cost of maintaining your services after losing key people. These amounts could vary greatly.
When you take out a policy, you’ll also need to choose:
Personal factors will also impact the premium you pay. Insurers will consider:
If you’re ready to get instant online quotes and compare providers, you can use our handy online quote tool. You can apply online to all the top UK insurers, such as Aviva, Vitality and more.
So how does HMRC tax Business Protection Insurance? Well this will depend on the type of product and the specific circumstances of your business.
SPECIALIST TIP 🤓
Before setting up any kind of Business Protection, we recommend speaking to one of our specialists, as well as your accountant. This is to ensure you choose the right type of policy for your business and its particular circumstance.
When considering protecting your business, it’s important to consider some personal policies too. For example, you might want cover for a Director. If this is the case, a personal policy might be a better option than a Business Protection Policy.
Generally, there are two different kinds of personal policy you can opt for when it comes to Directors, these are:
Your company pays for Relevant Life Insurance, which protects you as a director by paying a cash lump sum to your family if you pass away.
Given that your organisation pays for the policy, it’s incredibly tax-efficient. In fact, directors can save up to 50% compared to paying for a personal policy.
In general, directors don’t tend to get sick pay. As such, you may want to consider Income Protection for Company Directors.
If you become too ill to work, the policy pays you a monthly income. The benefit is equal to a percentage of your gross drawings into the company before you became ill.
You can then distribute these funds from the business in a tax-efficient manner. Many directors arrange a consultation with an accountant to make up for your lost income.
When it comes to Business Insurance, it pays to shop around. Each provider has a different attitude to risk. With this comes a range of different definitions for critical conditions.
Here at Drewberry™, we have access to the whole of the UK insurance market. We work closely with top insurers, such as:
The core benefit of any insurance policy is that it provides protection should the worst happen. However, many insurers include a number of additional benefits with their policies. Some of the most popular perks include:
It’s worth comparing these when you take out a policy to see what you would get the most use out of.
Business Protection Insurance is more complicated than personal protection. The way you pay for it is often different. Also, the way HMRC taxes the policy will vary depending on the type of cover and how you set it up.
We’ve helped our clients protect their businesses from the financial effects of losing key people. Our consultants can research the market, negotiate the best price, and guide you through the application process.
Not only that, but our friendly specialists can also advise on the tax implications of different kinds of protection. They’ll be able to advise whether you can receive tax relief and if you need a business trust.
Employee benefits can be a headache. But our specialists do this day-in, day-out, offering first class service when you need it most. Here’s why you should talk to us:
We are a team of regulated financial advisers, if you need help give us a call on 02084327333 or email help@drewberry.co.uk.
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