Over the years, your clients will have worked hard to build their businesses. So, it won’t be a surprise that many of them have taken care to insure their premises, stock, and equipment against unexpected setbacks.
But how many of them have protected the key assets of the business: themselves and their team?
Research from insurer Royal London has revealed that four in five SMEs in the UK don’t have any business protection cover. Without it, companies could face significant disruption if something was to happen to a shareholder or a key member of staff.
Business protection can offer clients real peace of mind. It can give them the reassurance that, whatever happens to the key people in the business, the value of their hard work and enterprise will be protected for their chosen beneficiaries.
Here are three types of business protection your clients should consider.
1. Key person insurance
Every business has key people who significantly contribute to the company’s financial success. This might be because they have specialist skills, knowledge, or experience. It could be the owner of a business, a leading salesperson, or an individual with niche or specialist skills.
Without these people, the business could suffer. Output could stall, the firm may find it difficult to fulfil orders, or directors could find themselves unable to repay loans.
Key person insurance provides the business with a lump sum on the death or the critical illness of a key member of staff. This can help to pay for recruitment costs, to settle debts or loans, or simply to replace any lost profits.
This type of protection can provide real peace of mind and, crucially, time for the business to recover.
Typically, the company would own the key person protection policy for its own benefit. That way, any benefits will be paid directly to the company.
2. Shareholder protection
In the event of an unexpected death or illness, the last thing your client wants to deal with are issues surrounding the ownership of the company.
For example, if a client were to pass away, their family might inherit their share in the business. However, at this time, they may be more in need of liquid assets than shares in a company. They may also have no interest in being involved in the day-to-day running of a business.
Shareholder protection provides a lump sum to the remaining shareholders in the event of a premature death. It enables the surviving shareholders to buy the other party’s shares, ensuring the family of the deceased benefit from the value of the holding in the form of liquid assets.
Any protection your client sets up must be aligned with the company’s Articles of Association and the shareholders’ agreement.
3. Relevant life cover
Relevant life cover provides valuable life insurance for a client’s employees and their families. It pays out a tax-free lump sum to an employee’s beneficiaries if they die while in your client’s employment.
Clients can cover any employee (including themselves), as long as they are a UK resident and work for the business in a PAYE capacity. The only people who aren’t eligible for cover are:
- Sole traders
- Equity partners in a partnership
- Members of a limited liability partnership.
Relevant life cover can be a useful employee benefit and can help your client’s business to attract and retain employees. As the cover is available to companies of all sizes, it’s a useful option for smaller business who aren’t eligible for group insurance packages.
And, as premiums are typically viewed as an allowable business expense, neither clients nor their employees pay Income Tax or National Insurance on premiums. They are also a deductible business expense and so can reduce a Corporation Tax liability.
If your client is a company director and they currently pay for their life insurance from their own income, relevant life cover could also save them money as their company could pay for this cover instead.
Relevant cover is also appealing if your client is a high-earning employee nearing their maximum allowances.
Unlike death in service payouts, which are usually classed as a pension benefit for tax purposes (and so have pension Lifetime Allowance issues), relevant life cover payouts don’t count towards annual or lifetime pension allowances. Clients therefore avoid a potential Lifetime Allowance tax charge.
We can help your clients to get the right business protection
Whatever business your client runs, we can help them to find the cover they need for themselves, their fellow shareholders, key personnel, and staff.
To find out how we can work with you, please email firstname.lastname@example.org or call 01904 655330.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation which is subject to change.