At Integrity Wealth Solutions, we have seen first-hand that appropriate and adequate business protection can be critical to a business’s survival. Many businesses are quick to protect their liabilities and physical assets yet forget to insure their most valuable asset - their people. This could be key employees, partners or directors.
Types of Business Protection:
Key Person Cover
A key person is any member of staff who has a direct impact on the business’s profits, such as the business owner, director, sales person/manager or any employee with specialist skills or expertise.
Key Person cover is life insurance taken out by a business on the life of someone crucial to the business. Critical Illness cover can also be added to the policy, which pays out a cash lump sum on the diagnosis of one of the specified conditions outlined in the policy terms and conditions.
It provides a financial safety net if a key member of staff dies or is diagnosed with a serious illness, with the proceeds from the policy paid directly to the company or partners, helping them to protect their profits, recruit a suitable replacement or clear business debts to continue trading as normally as possible (sometimes at the request of a lender).
Key features:
Protect profits
Recruitment costs
Loss of profits whilst the business is disrupted
Paying penalties for non or late delivery on goods and services
Paying any company sick pay to the key person if the claim is related to a critical illness
Protect debts
Being unable to repay a loan
Paying back a business overdraft
Nervous suppliers may demand payment of an account up front
Covering owed salaries, dividends or loaned money through a director's loan account
Key Person Cover can protect sole traders who are personally liable for business debt. If they died unexpectedly, any debt they leave behind is paid out of their estate.
Relevant Life Cover
Relevant Life Cover allows employers to offer a bespoke death-in-service benefit to their directors or employees. It’s a tax-efficient life insurance policy, set up by the employer and pays out a tax-free lump sum on the death (or diagnosis of a terminal illness) of the person insured. Some providers also offer Relevant Life Cover with additional ‘employee sickness benefit’, that is designed to pay on death, terminal illness diagnosis or if the life covered meets the definition for one of the defined employee significant illness conditions during the policy term, survives for at least 10 days, and the condition results in the retirement or anticipated retirement of the life covered.
The proceeds go to the employee's family or financial dependants. It can help smaller businesses attract and retain high-calibre staff by offering them attractive benefits packages.
This cover might benefit high earning employees who might exceed their pension lifetime allowance or have members of group schemes who want to top up their benefits.
Key features:
Counts as a tax-deductible business expense
The premiums are paid monthly
Guaranteed premiums
Benefits are usually free from inheritance tax
The life covered must be a UK resident employee of a UK resident business. This includes salaried company directors/partners and single (salaried) directors of a limited company (e.g. IT contractors)
Equity partners, sole traders and anyone treated as being self-employed are not eligible to be covered by relevant life plans.
There is often a maximum amount of cover available (can be up to £10 million)
Tax Benefit:
There can be tax benefits for both the employer and employee as detailed below -
Employer benefits:
• Corporation tax relief (so long as the premiums are wholly and exclusively for the purposes of the business).
• Normally no National Insurance contributions to pay on the policy payments paid to fund the relevant life policy.
Employee benefits:
• Normally no National Insurance contributions to pay on the policy payments paid to fund the relevant life policy.
• Can benefit from their employer making the policy payments and these aren't normally subject to tax as a benefit in kind or remuneration.
• Policy payments and benefits don’t count towards annual or lifetime pension allowances.
• Claim proceeds aren’t normally subject to any income tax, national insurance, corporation tax or capital gains tax implications, where the relevant life policy is held in trust.
Shareholder/Partnership Protection
If a business owner dies with no share protection in place, his or her share in the business may be passed to their family. This means that the surviving business owners could lose control of a proportion or, in some circumstances, all of the business. The family may choose to become involved in the ongoing running of the business or could even sell their share to an unknown party or competitor.
Share Protection and Partnership Protection can help business owners keep control of their business if one of them dies or is diagnosed with a critical illness, and also ensures the deceased’s family are fairly treated. It helps by providing the funds for business owners to buy the insured shareholder’s/partner’s interest in the firm (using the appropriate option agreement) and retain control over the running of the business. The combination of a suitable agreement and the correct insurance will give peace of mind that, should the worst happen, the continuing shareholder/partner would have funds to help buy the share of the business and the deceased's family will receive appropriate financial compensation.
How much cover?
Valuing a company can be difficult and surviving shareholders/partners will need enough money to purchase the lost business owner’s share. We work closely with your accountant to ascertain the exact level of cover required, and review this on an ongoing basis. In the absence of an accountant’s valuation, as a guide, you should consider looking at the following when setting the level of cover.
Net profit from the last 3 years
Assets (such as property, vehicles, specialist equipment)
Liabilities
And price earnings ratio (assuming future performance)
Income Protection
Income protection insurance (previously known as permanent health insurance) is designed to provide you with a tax-free replacement income if you can’t work due to accident or sickness. Income protection usually pays out until retirement, death or your return to work, although short-term income protection policies, which last for one or two years, are also available at a lower cost. Income protection is particularly important for anyone without or with limited sick pay through their employer.
For a monthly premium, the price of which depends on various factors including age, health and occupation, an income protection policy can provide a replacement income of up to 70% of your annual salary. You do not have to pay income tax on the benefit you receive. You can also opt to have these premiums and benefits increase each year to keep pace with inflation.
Income protection policies pay out only once a pre-agreed “deferral” period has passed, generally ranging from one to 12 months after you become unable to work. The longer the deferral period you choose during application stage, the lower your premiums will be.
Some providers offer additional benefits such as hospitalisation pay-outs, life insurance, fracture cover and “back to work” services.
Employee Benefits:
Offering a more sophisticated employee benefits package can help attract valuable employees and encourage higher staff retention. We work with you to tailor a benefits package that is competitive and appealing to the workforce you require. Such benefits include:
• Group Pension (now mandatory in most cases due to Auto Enrolment)
• Group Life Insurance
• Groupe Private Medical Insurance
• Group Income Protection