Business Protection
The guidance and/or advice contained within this website is subject to the UK regulatory regime, and is therefore targeted at consumers based in the UK.
Here’s an overview of the products I can advise on, I’ve given simple examples in layman’s terms and there are always nuances to any given situation.
The niche products are Relevant life policies (Stand alone Death In Service paid for by the Ltd Company) and Executive Income Replacement Plan (Life of another Income Protection paid for by the limited company) covered in the Key Person section.
- Loan Protection
If a business has a bank loan which is repayable on death and secured on the personal assets of the director(s), this could result in a directors personal assets (home etc.) being repossessed by the bank to repay the loan. A life (or life and critical illness) policy for the amount and term of the loan ensures that in the event of death the policy pays out and the personal assets of the director(s) are safe.
- Share Protection
- If you are the sole owner of a business, generally speaking when you die, your business dies. You have a policy for the value of your business in trust to your beneficiaries. That way, if the worst happens, you pass on the value of your business. A Relevant life policy is a standalone death in service policy whereby the whole of the premium is a legitimate business expense and doesn’t count as a P11D benefit in kind. You can have 15x income (including dividends and P11D benefits) up to a maximum of £5M, (20M with certain providers), the proceeds are non taxable and do not form part of your estate upon death as they are written into a Relevant Life Trust.
- Two people own 50% each of a business worth £1,000,000. One dies and leaves his 50% shares to his/her wife/husband. The partner knows nothing about the business, you don’t even get on and have no desire to run a business together. What the deceased partner really wanted was the monetary value of his shares to go to his beneficiaries. Solution: Both owners have a life policy for the value of their shares which pay out into a flexible business trust of which they are both trustees. They have a cross option agreement in place which means that if EITHER the remaining partner says they want to buy back the shares OR the beneficiary says they want to sell the deal has to happen. They don’t have to agree. This way the cash is there, the shares can be bought, the beneficiary gets what the deceased partner wanted them to get, the monetary value of the shares. The remaining partner gets the shares. No money needs to be raised and the business and beneficiary can then get on with business and life. This can work for any number of partners and can also be done on a Critical Illness cover basis. It is also tax efficient.
- If you are the sole owner of a business, generally speaking when you die, your business dies. You have a policy for the value of your business in trust to your beneficiaries. That way, if the worst happens, you pass on the value of your business. A Relevant life policy is a standalone death in service policy whereby the whole of the premium is a legitimate business expense and doesn’t count as a P11D benefit in kind. You can have 15x income (including dividends and P11D benefits) up to a maximum of £5M, (20M with certain providers), the proceeds are non taxable and do not form part of your estate upon death as they are written into a Relevant Life Trust.
- Key Man/Person
Essentially this is “loss of profits” insurance, covering any situation whereby the loss of a director or employee whether permanent or temporary has an adverse affect on the profits of the company. This again can be in the form of life and/or Critical Illness cover which is on a life of another basis and comes into the company as a trading receipt for the company to use as it sees fit. But what can be more crucial to a smaller business is the non-critical events that prevent staff from working.
Solution: Executive or Group Income Protection.
- A one person Limited Company would start to suffer financially if they couldn’t work after 4 weeks (variable). Usually if you own more than 20% (in some cases 5%) of a limited company the way HMRC views it is you’re protecting your profits which you pay to yourself as dividends therefore it’s personal Income Protection and not a legitimate business expense. Solution: Executive Income Replacement Plan. The Ltd company takes out “life of another” Income Protection on the employee (quite often one and the same person) If the employee can’t work the policy pays out and the money comes in to the company as a trading receipt, the company can do what it likes with the money, it can also be paid to the individual as sick pay but usually a one man business would be using this to keep his business running by employing someone to do the work enabling him to still generate a profit and a company would use the proceeds to hire temporary cover while the key person was off work. There are also dual benefit schemes which allow the company to pay sick pay and employ a replacement. A legitimate business expense that comes off the bottom line.
- A company with more than one employee wants to protect itself from paying wages to staff off sick. Solution: Group Income Protection Cover. This covers a percentage of the cost of paying the sick employees wages and can also include pension contributions, NICS, dividends. There is additional finance to help the business to cover the costs of recruiting temporary or replacement staff. Dual Benefit also allows employees to continue receiving benefits via the Pay Direct option, even if they cannot return to work and decide to leave the employer.
- A one person Limited Company would start to suffer financially if they couldn’t work after 4 weeks (variable). Usually if you own more than 20% (in some cases 5%) of a limited company the way HMRC views it is you’re protecting your profits which you pay to yourself as dividends therefore it’s personal Income Protection and not a legitimate business expense. Solution: Executive Income Replacement Plan. The Ltd company takes out “life of another” Income Protection on the employee (quite often one and the same person) If the employee can’t work the policy pays out and the money comes in to the company as a trading receipt, the company can do what it likes with the money, it can also be paid to the individual as sick pay but usually a one man business would be using this to keep his business running by employing someone to do the work enabling him to still generate a profit and a company would use the proceeds to hire temporary cover while the key person was off work. There are also dual benefit schemes which allow the company to pay sick pay and employ a replacement. A legitimate business expense that comes off the bottom line.
- Group Company Benefits
Whereby a company takes out benefits on behalf of its employees on a group basis benefit from the spread of risk across the whole group. This is a great way of staff retention and costs a lot less than pay rises as there are no tax or nics to pay on the benefit, coupled with the fact that they are genuine business expenses as listed alongside remuneration it’s a double win for companies. - Group Death In Service
- Group Critical Illness
- Group Private Medical
- Group Hospital Cash Plan
That’s a fairly concise overview, please feel free to ask me any questions or for more detailed info on any of them.
Business Protect is an Appointed Representative of New Leaf Distribution Limited, who are authorised and regulated by the Financial Services Authority for general insurance only. Our FSA register number is 460421.