What is it?
Business Protection ensures that the business has the funds available to continue to operate if a shareholder or key employee suffers from a critical illness or death. The sudden loss of a shareholder, director of key employee can impact upon the ownership of the business, its profitability or its ability to continue to trade.
Key Person’s Insurance
Many businesses have employees that are key to their profit and continued growth. The loss of a key employee can have a major impact on the business; they could lose contracts or trigger penalties within the contracts, or at a minimum incur recruitment costs. In the worst case, if a replacement is not found, it could lead to the closure of the business altogether.
To protect the business, owners should consider if any of their employees are key to the organisation, and if so, arrange life cover for the potential cost to the business should that individual get a critical illness or die.
Partnership Protection or Director Shareholder Purchase Protection
Should a partner or director suffer a critical illness whereby they would be unable to return to work, or should they die, the company and the estate would have to come to an agreement as to how the shares would be dealt with. There are two ways to deal with this situation:
1. upon death, there is an agreement in place whereby the shares will be cancelled and returned to the company without value. This means that all the partner or director’s hard work and investment will amount to nothing and the estate would have no claim to the business interests of the deceased. Potentially the estate may still have a claim on the business if they feel that this is unjust
2. upon death, there is an agreement in place whereby the shares are purchased from the estate at market value. This ensures that the deceased’s family receive fair value for all the hard work and investment that the deceased made within the business.
Partnership Protection, or Director Shareholder Purchase (DSP) Protection cover is taken out on each director or partner to ensure that there is sufficient money available to allow the company to purchase the shares from the deceased’s estate.
Relevant Life Plan
Relevant Life Insurance is a form of Death in Service. Should an employee die during the term of the policy, a sum based on multiple of salary will be paid to the estate under trust. This cover would be used in place of Group Death in Service, where the number of lives would not meet the minimum requirement for a group plan. Typically, Relevant Life Plan is used by smaller companies to protect shareholding directors or key employees. The main advantage of this plan is that the premium is treated as a business expense. It is not a P11D benefit in kind and the benefit is paid to the estate tax-free.
We can help calculate the amount of business protection cover required, how best to set up the plan and recommend the most suitable policies for your business. Contact us today for an informal chat.
