Business Protection Business Protection
Protect your key people
If something happens to either a business owner or other key person, then the business is going to suffer. Yes, of course others can muck in and help but let’s not pretend it wouldn’t affect day to day operations and therefore profits!
A business may have debts and these could include Director’s loans. The family of the deceased business owner can request immediate repayment of a Director’s loan on death. Would the business have the funds to deliver on that requirement? Would the bank want their loan repaid? Might they tighten their credit terms? Suppliers may do the same.
A Key Person policy can buy a business time to work these issues through.
A lump sum payment from such a policy could keep the business profitable, repay debts, source, recruit and train replacement staff.
Protect the shareholders
If Directors pass away then what happens to their shares? When you set up and run your business you can be forgiven for not thinking this through, but it can backfire if you don’t. Let’s face it, whilst you may get on with your business partner’s spouse, you likely don’t want to be running the business 50/50 with them if your co-owner were to die (to be fair, I’m pretty sure that’s not in there plan for a perfect future either!).
You want your co-owner’s shares so you can move forward with the business, but your co-owner’s spouse deserves to be paid a fair price for the shares.
A Share Protection policy pays a lump sum to the surviving owner(s) so they can buy the shares back from the deceased owner’s spouse at an agreed valuation.
Simple once you think it through, but a potential hornets' nest if you don’t!
Provide sick pay
If a Director were to be ill for a prolonged period away from work then it creates a difficult position. You naturally want to support each other, but for how long? How long could the business keep coughing up (bad phrase perhaps) and paying an incapacitated Director?
If we set up “Executive Income Protection” then the business is liable for an insurance premium that removes the company liability to pay sick pay onto the insurer. The Director does not become a burden to the business and continues to be paid.
The business pays the premiums, get’s corporation tax relief and the Directors have no tax liability either. For business owners, this has to be a no-brainer!
Providing for your families
The death of a Director would impact the livelihood of their family. Household income would reduce. That’s not likely the future for their family an owner would wish for.
The business can pay for a “death-in-service” life policy called a Relevant Life Plan, that would pay the family a lump sum to compensate them for future years of lost income.
The business pays for this out of profits so making it a highly tax-efficient way to give an important employee benefit to directors and other staff. There is also no “benefit-in-kind” tax liability on the insured Director or staff member.