Complete Guide To Business Protection Insurance In The UK

What Are The Different Types of Business Protection Insurance?

When it comes to Business Protection Insurance, there are three main types of cover:

• Keyman Insurance
• Shareholder Protection Insurance
• Business Loan Insurance.

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

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:

• Business owner or director
• Sales director
• Chief technical officer
• Chief financial officer
• Anyone who significantly contributes to the company’s success.

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.

Popular Keyman Insurance Guides…

• How Does HMRC Tax Keyman Insurance?
• How Do I Choose The Level Of Cover for Keyman Insurance?
• Keyman Insurance or Executive Income Protection?

Shareholder Protection 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:

• The deceased’s family member may not have the interest or aptitude for running a company
• They may become a sleeping partner, entitled to a slice of the profits without contributing to the business
• Or, to realise the value of the shares, they may sell them to a third party. This could leave you with a new business partner who may not be a good fit.

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.

Popular Shareholder Protection Guides…

• Shareholder Protection: Own Life or Company Share Purchase?
• Why Take Out Shareholder Protection Insurance?
• How Do I Value My Company Shares for Shareholder Protection?

Business Loan Insurance

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:

• Outstanding business loans
• Director’s loans
• Venture capital loans
• Commercial mortgages
• Personal guarantees.

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.

Useful Business Loan Insurance Guides…

• Is Business Loan Insurance Compulsory?
• Can You Take Out Joint Business Loan Insurance?
• Do I Need Level or Decreasing Business Loan Insurance?
• How is Business Loan Insurance Taxed?

Do I Need Business Insurance?

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.

What’s the Risk of Passing Away?

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.

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.

What’s The Risk Of Critical Illness?

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.

What Can Business Protection Insurance Cover?

Whatever the individual’s role, losing them can cost more than just recruiting and training fees. Business Protection can cover:

• Loss of profits
• Losing important personal or business contacts
• Loss of confidence from suppliers and customers
• Loss of detailed knowledge of the company’s processes and systems.

A Business Protection policy can also provide the funds to:

• Repay a loan the key person has made to the organisation
• Repay an external loan or venture capital funding
• Repurchase an absent shareholder’s shares.

In essence, this kind of cover is there to assure business continuity if the worst should happen.

How Much Does Business Protection Insurance Cost?

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:

• The policy term
• If you want to add Critical Illness Insurance
• Whether the benefit will be Level Life Insurance or Decreasing Life Insurance.

Personal factors will also impact the premium you pay. Insurers will consider:

• Age
• Health status
• Smoker status
• Lifestyle and hazardous activities
• Family health history.

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.

How Does HMRC Tax Business Protection Insurance?

So how does HMRC tax Business Protection Insurance? Well this will depend on the type of product and the specific circumstances of your business.

• Taxation Of Shareholder Protection
  Premiums are rarely eligible for corporation tax relief as the plan covers profit loss, rather than the organisation. A claim on a plan that covers shareholders usually also counts as a trading receipt, which means HMRC will also tax the payout.
• Taxation of Keyman Insurance
  Insurance policies covering employees are generally regarded by HMRC as a business benefit. This makes the premiums usually eligible for tax relief. However, despite the tax relief, the benefit is still classified as a trading receipt, and HMRC will tax any claim payout.
• Business Loan Insurance Tax
  Life Insurance policies taken out to cover a business loan are considered beneficial to the lender rather than the business. As a result of this, premiums can’t be deducted against corporation tax. However, as the policy’s payout is intended to rebalance the company’s capital account, HMRC generally doesn’t see it as a trading receipt

Personal Protection For Directors

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:

Relevant Life Insurance

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.

Executive Income Protection

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.

Who Are The Best Business Protection Insurance Providers In The UK?

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:

• Aegon
• Aviva
• Legal & General
• Liverpool Victoria
• Royal London
• Scottish Widows
• Vitality
• Zurich.

Additional Support Services

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:

• 24 / 7 Virtual GP Service
• Physiotherapy Sessions
• Counselling & Stress Helpline
• High street discounts and rewards for healthy living.

It’s worth comparing these when you take out a policy to see what you would get the most use out of.

Get Business Protection Quotes & Expert Advice

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 experts 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.

Why Speak to Us?

We started Drewberry™ because we were tired of being treated like a number.

We all deserve a first class service when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

• We are award winning 🏆 independent insurance advisers who work with all the leading UK insurers
• You’ll speak to a dedicated expert from start to finish
• We are very proud of the 4002 and growing independent client reviews rating us at 4.92 / 5
• We are authorised and regulated by the Financial Conduct Authority. You can find us on the financial services register here 🧐
• Claims support when you need it most.

We are a team of regulated financial advisers, if you need help give us a call on 02084327333 or email help@drewberry.co.uk.