Business Protection

Whether a Director, Partner, Owner or Key Employee of a business it is the people that ensure the ongoing success and stability of the business.

It is sensible for businesses owners large and small to review how much the future success of the business relies on you or your colleagues being fit and able to continue working in the business.

Illness whether short or long term could have a dramatic impact on the business performance and worst still death could have untold consequences for the ongoing viability of the business.

Whilst Keyman and Partnership Insurance is not preventative it will prove invaluable for the stability or indeed recovery of the business during the absence or following the loss of a key individual from within the business.

Protection of your income – especially when self employed – is vital after all who will pay you if you are unable to work?

Income Protection policies provide peace of mind that should you be unable to work due to illness or injury then approximately 50% – 60% of your pre incapacity earnings can be paid to you tax free until you recover.

Protection of your profits and your personnel makes sense after all you will have protection in place for your buildings/vehicles/stock and liabilities….why not the most valuable assets of the business – YOU AND YOUR STAFF.

……Protecting the most valuable asset

Keyman Insurance can be taken out to compensate the business for financial losses in the event of the death or extended incapacity of the member of the business it also facilitates greater business continuity by providing the financial support to the alternative arrangements.

Keyman Insurance does not protect against the actual losses incurred but compensates with a fixed monetary sum such as specified on the insurance policy.

The basics

There are four categories of loss for which Keyman Insurance can provide compensation:

Losses related to the extended period when a key person is unable to work, to provide temporary personnel and, if necessary to finance the recruitment and training of a replacement.

Insurance to protect profits. For example, offsetting lost income from lost sales, losses resulting from the delay or cancellation of any business project that the key person was involved in, loss of opportunity to expand, loss of specialised skills or knowledge.

Insurance to protect shareholders or partnership interests. Typically this is insurance to enable shareholdings or partnership interests to be purchased by existing shareholders or partners.

Insurance for anyone involved in guaranteeing businesses loans or banking facilities. The value of insurance cover is arranged to equal the value of the guarantee given by the key person.

Shareholder Protection

Whilst most companies are very busy running their business, many of them have not considered what may happen should a shareholder become seriously ill or even worse, die.

Being prepared for this potential and even sometimes fatal financial crisis should be paramount for many companies (especially private limited companies with a small group of shareholders).

It is essential to cover your company against the loss of a shareholder and provide a financial safety net which will provide your business with both stability and security and ensures that your business will continue to prosper for many more years to come.

Shareholder protection benefits

Prevents the sale of your companies shares to a competitor or a hostile / reckless party.
Ensures that the critically ill or deceased shareholders dependents gain quick access to the funds.
Ensures a strong stability and continuity for your company.
Enables the swift arrangement of the shares to be transferred amongst the remaining shareholders at a fair price and tax efficiently.
Avoids using important funds which where set aside for other purposes.
Each shareholder can each have an insurance policy which will cover their specific amount of shares that they hold within the company.

Dangers to losing a shareholder

The remaining shareholders may not have sufficient funds to purchase the lost shares.
The shares may go to the deceased’s family or even an inexperienced or reckless relative.
The shares may even be bought or taken over by one of your competitors.

Shareholder Protection will provide your company with the necessary funds and procedures to ensure that your company continues to operate with minimum disruption to it’s continuity and help to make sure that you remain in control.

Business Protection

Partnership Protection

Probably the biggest most single worry of any business partnership is the risk that one of your partners may die or suffer a critical illness and their share of your business being handed over to someone else who may have very little interest in the business or could even run the risk of being reckless with their share of the business.

Also, should a partner suffer and survive from a critical illness but can no longer work then they may want compensating for exiting the partnership.

A Partnership Protection Insurance policy will provide the company with a pre arranged scheme which will provide any surviving partners the necessary funds to buy out the deceased’s share in the business or to compensate them or their dependents.

Partnership Insurance can also be used to cover against the retirement of any partners

Here are the benefits and why it is essential to have Partnership Insurance:

Provides arrangements to ensure that your partnership will not be automatically dissolved upon the death of a partner.
Enables your business a certain level of continuity and to trade as normal during any transitional periods.
Protects your business against any careless, reckless or disinterested inheritors.
Protects your business from any competitors buying into your business or any other hostile parties.
Avoids you having to dip into any funds which may have been allocated for other purposes to enable you to compensate the deceased’s dependents.

Compare Business Protection

Not sure which business protection is right for your company.

Use our table below to compare Shareholder Protection, Keyman Protection & Partnership Protection and help find which is the most suitable for your business.

	Shareholder Protection	Keyman Protection	Partnership Protection
Reason	Provides a lump sum of money for the remaining shareholders to buy the lost shares from the deceased / critically ill shareholder enabling the remaining shareholders to keep control of the company and will give the deceased shareholders dependents cash rather than shares.	Provides a lump sum of money upon the critical illness or death of a key worker. This money can be used to absorb any drop in turnover / profit or can be used for recruitment / re-training purposes.	Provides a lump sum of money with which the remaining partner(s) can use to buy out the shares from the critically ill or deceased partner.
Level of Cover	An agreed valuation of the shareholding.	Enough to cover any loss of profits, training / recruitment costs and or any loan values.	An agreed valuation of the value of the companies shares.
Application	With a cross option agreement, a life and critical illness cover policy on ’Own Life’ written in trust to benefit the remaining shareholders.	Life and critical illness cover policy written under a ‘Life of another’ basis.	With a cross option agreement, a life and critical illness cover policy on ’Own Life’ written in trust to benefit the remaining partner(s).
Premiums	The shareholder will pay their own premiums but can increase their income to cover this amount.	The company will pay the insurance premiums.	Each partner will pay their own premiums but can draw extra money from the company to cover this amount.
Tax Info	Premiums are not tax deductible but any claim is not liable to taxation due to it being an ‘Own Life’ cover policy.	Usually tax can be relieved on the premiums but any claim is treated as taxable.	Premiums are not tax deductible but any claim is not liable to taxation due to it being an ‘Own Life’ cover policy.

Relevant Life Policy

Huge Savings On life Insurance with a Relevant Life Policy

Recently a new type of life insurance called a “Relevant Life Policy” has been breaking onto the market. This product has to be very carefully set up to ensure it is done correctly and the full tax benefits received. The policy is designed to give directors and employees tax efficient life Insurance policy which can be paid by their Limited company with the beneficiary being a named person, usually a partner, child or family member.

How Much Will I Save:

Basic Rate Tax Payer (20%) – 40% Savings compared to personal premium
Higher Rate Tax payer (40%) – 49% Savings compared to personal premium
Highest Rate Tax Payer (50%) – 58% Savings compared to personal premium

*Please see the bottom of the page for assumed figures in the above illustration.

Working example

If your annual premium was £600 a year on a relevant life policy, the equivalent gross premium would be £1,177 a year as a personal.

It is very tax efficient as the company can set it off against its profits, therefore saving the 20% corporation tax, plus as it is paid from the company it avoids being paid from your personal taxed earnings. If you are a higher rate tax payer, your premium of £50 a month (for example) is the equivalent to approximately £80 before tax. Also there are savings on National insurance contributions by both the employer and the employee. These savings make a Relevant Life policy the best way for a director to protect his family in the event of his death.

Relevant Life, Tax Efficient Life Cover for Directors

To qualify for relevant life policies you have to be a director of a company. The company must pay the premiums, and the beneficiary must be a third party i.e. Family member or spouse. Because you do not receive any of the benefit yourself it is not taxed as a benefit and does not have to appear on your P11D form. We are not tax advisers and would strongly advise you to speak to a suitably qualified person to discuss the actual tax benefits.

With a relevant life policy you will need a “Trust” to be set up. This trust will be the beneficiary of the policy and can have numerous trustees and beneficiaries. It would be advisable to have more than one trustee in case one of them dies. Trustees have to be over 18 years old. You can have as many beneficiaries as you like, additional forms can be completed to add them. Next to the beneficiary details you have to specify the % share they are entitled to.

Along with the trust form you can submit a “Letter of Wishes”. A letter of wishes does pretty much what it says. You can lay down you intention for the benefit and how it should be used, for example, if the trustee is a brother or sister, but the beneficiary is your younger children. You may wish that the children do not receive any money until they are 21 years old, or that it can only be used to buy a property or go towards school fees. The letter of wishes is not a legally binding contract, but it is intended to clarify the wishes of the deceased. And considering it is a trustee who you have put in place, you would expect your wishes to be granted.

Relevant Life Policies are life only and you cannot bolt on any critical illness.

Assumed figures used for the “How Much can i Save”

Corporation tax @ 20%
Employee National Insurance @ 2%
Employer National Insurance @ 13.8%

Business Protection

Business Protection

Working example

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