What Is Business Protection Insurance? Do We Need It? How Much Does It Cost?

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07-10-2020

Business Protection Insurance provides a financial safety net for your company if a key individual, shareholder or partner dies. The cash lump sum payout is designed to keep your business afloat during such difficult times. Add Critical Illness Cover to pay out if a key individual suffers a serious illness such as cancer, heart attack or stroke.

There are three main types of cover:

Do We Need Business Insurance?

When business owners think about protecting their company, they firstly think of assets such as vehicles, premises and stock.

While nearly everyone insures these, many forget about what’s most valuable — the people behind the business. No matter the size of your company, there’s usually at least one or two key people the business simply couldn’t do without.

Guide to protecting your business and it

Key people might include:

  • Business owners / directors
  • Sales directors
  • Chief technical officers
  • Chief financial officers
  • Anyone else who significantly contributes to the company’s ongoing success.

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

  • 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.

It can also provide the funds to:

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

The Business Protection Research

Legal & General found that 52% of businesses would fold within a year if they lost a key person. Yet despite this, half of companies don’t have any kind of business protection.

The research also found that:

  • 51% of businesses have some type of debt. However, just 20% had insured it.
  • 28% of companies weren’t aware they may need to repay a Directors Loan if the lending director died.
  • More than 1 in 3 companies said the remaining shareholders would want to buy a deceased shareholder’s shares. Yet it’s not always clear how surviving shareholders would pay for this.

What’s the Risk of Passing Away?

Utilising ONS Mortality Data the table below represents the risk of a male at various ages dying in the 10 years.

Risk of Death in 10 Years

35 Years Old

1 in 62

45 Years Old

1 in 29

55 Years Old

1 in 12

Use our Life Expectancy Calculator to work out your own personal risk of death over a given period 😵

What’s the Risk of Becoming Critically Ill?

Around 80% of all Critical Illness claims are made up of the ‘big three’ illnesses — cancer, heart attacks and strokes.

  • Around 1 in 4 new cancer diagnoses each year are in people aged under 60 (Cancer Research UK).
  • Almost 1 million people in the UK have survived a heart attack and more than 1.2 million have survived a stroke or transient ischaemic attack (TIA) — almost half of these are under the age of 75. (British Heart Foundation).

IMPORTANT NOTICE 🧐
Not every case of these illnesses will be covered by Critical Illness Cover. Less severe incidences may not be included in your policy wording or may only trigger a partial payout, so it’s important to check definitions carefully.

Types of Business Protection

Keyman Insurance

Key person cover protects your business against the loss of a key member of staff.

This could be anyone from a business owner to key management figures. It offers a payout to help provide business continuity in the event that the key employee dies or is diagnosed with a critical illness.

Popular Keyman Insurance Guides…

Meet Our Keyman Clients…

Shareholder Protection Insurance

When a shareholder dies, their shares usually become part of their estate. These shares are then typically transferred to a family member.

This can cause problems for a business.

  • Will the family have the interest and the aptitude for running a company?
  • Will they simply be a sleeping partner, entitled to a slice of the profits without helping out?

To retain control of the business, the remaining shareholders must raise funds buy back the absent shareholder’s shares.

It’s here Shareholder Protection steps in by providing the funds to buy back the shares of a shareholder who suffers a terminal illness, dies or is diagnosed with a critical illness.

Popular Shareholder Protection Guides…

Business Loan Insurance

If you have corporate debt it’s worth considering Business Loan Protection in case someone responsible for repaying it dies or becomes critically ill.

An uninsured business loan runs the risk of your company being declared insolvent after your death if it can’t repay the loan. That’s why lenders and investors such as venture capital firms often expect a business to arrange this cover.

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.

Useful Business Loan Insurance Guides…

Please be aware these business insurance policies are designed for limited companies and partnerships, they are not designed for sole traders.

How Much Does Business Protection Insurance Cost?

The cost depends largely on the amount of cover you need, as well as:

  • The length of cover
  • Whether you add Critical Illness Insurance.

Other factors that impact the cost you have less control over. These include your:

  • Age
  • Current state of health
  • Smoker status
  • Lifestyle and hazardous activities
  • Family history.

To calculate the potential cost you can get instant online quotes from Aviva, Vitality and other top UK insurers here →

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Personal Protection for Company Directors

Relevant Life Insurance

Your company pays for Relevant Life Insurance, which protects your life as a director / employee by paying a cash lump sum to your family should you pass away.

Given the fact that your company pays for the policy, it’s incredibly tax efficient. The result is a Life Insurance policy that’s almost 50% cheaper than paying for cover personally.

More on Relevant Life Insurance…

Executive Income Protection

Directors and business owners 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, it pays a monthly income equal to a percentage of your gross pre-illness drawings into the business.

You then distribute these funds from the business in a tax-efficient manner in consultation with your accountant to make up for your lost income.

More on Executive Income Protection…

Compare Top UK Business Protection Insurers

When it comes to Business Insurance, it pays to shop around. Below are some of the top insurers in the market you may want to consider:

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

Everyday Benefits

There are a number of everyday benefits many insurers are choosing to include with their policies making them far more tangible. Some of the most popular include:

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

Get Business Insurance Quotes & Expert Advice

Business Protection Insurance is more complicated than personal cover. For example, the way you pay for it is usually different. Also, how HMRC taxes the policy will vary depending on the type of cover and how you set it up.

Why Speak to Us?

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve 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 a team of regulated financial advisers, if you need help give us a call on 02074425880 or email help@drewberry.co.uk.

The staff has been very knowledgeable and I have enjoyed working with Nadeem on setting up our plan.

Kim S
22/06/2020
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