What is business life insurance?
It’s a way of making sure that your business can go on if something happened to your staff, partners or you. Much like other types of life insurance, it’s there to keep things moving forward as best they can when something does go wrong. Taking out a policy isn’t about inviting disaster, it’s about being prepared – which is the best any business can do. So here are the different types you may want to consider.
Key person insurance
This isn’t literally about the person who locks up every day, it’s about the person that your business relies on the most. It could be you, a star sales person, or it could be an office manager who holds everything together. Whatever their title, your ‘Key person’ is the one person your company couldn’t be without.
Think about how your business would function without that person – if they became ill and couldn’t work for some time, how would you cope? Especially if they were also still expecting an income from your business.
Key person insurance can offer the answer. The policy would be taken out on the life of your Key person but it is paid for and owned by your business, so it would also be the beneficiary in the event of your Key person being unable to work. Premiums are calculated by working out how profitable your Key person is for your business.
The proceeds from a claim can be put towards whatever the business sees fit to invest in – whether that’s recruiting or training new staff, helping to cover a loss in profits, or easing cash flow.
Relevant life cover
If you’re a small business with less than five employees, this offers an alternative to group life schemes and can be a tax efficient way of offering death in service benefits to staff – which can give them and their families real peace of mind. It can be a valuable addition, or a starting point for any benefits package, whilst helping to retain your best people, or recruit new talent.
It’s a good way of keeping hard earned pennies away from the taxman as it can usually be claimed as a business expense and it’s not classed as a ‘benefit in kind’, so there’s no income tax to pay. The bonuses don’t end there, as the policy is written ‘in trust’. There’s potentially no inheritance tax payable either.
Like with Key person insurance, a relevant life policy would be taken out and paid for by the business on behalf of the employee. LifeSearch offers up to 25 times an employee’s annual salary (or dividends) and the policy term can be suited to what you need – level, decreasing or increasing (although it can’t go beyond the employee’s 75th birthday).
A claim can be made if the person named in the policy passes away or has a terminal illness; or if that employee leaves, then they can take the policy with them – and there’s no surrender value (the amount payable to a person who surrenders a life insurance policy).
Business loan protection
Borrowing money, is exactly that – borrowing – and the time will come when lenders will want their money back. But what would happen if your business were to lose the input of a key person, a director or shareholder and that loan needed to be paid back at short notice? Cash flow isn’t always predictable and when someone important to the business becomes ill or dies, then that uncertainty can become volatile.
Business loan protection can cover various types of debt – from directors loans, commercial loans and mortgages, venture capital loans, overdrafts, credit cards and even personal guarantees. Policies can be taken out for employees and business owners with the amount of cover reflecting the amount of debt. You’ll need to tailor the policy to mirror any terms set out in the borrowing agreement but the experts at LifeSearch can guide you through this. You can also protect a business owner should they pass away or become seriously ill to provide a lump sum to cover your business loans and other debts.
If you run your business with a partner or have shareholders, what would happen if they weren’t around? When someone passes away, their assets usually go to their dependents – that would include any shares in your business and who’s to say that what they want, is what the business needs? For example, they may prefer to receive a cash lump sum but you may not have the cash flow to honour this. That could mean you have to sell on shares, which could reduce your control of the business.
That’s where ownership protection can keep things focussed. It means that if a business partner or shareholder were to pass away, then the remaining colleagues have the opportunity to buy up their proportion of the company. There are various options you can choose from, including Shareholder Protection, Company Share Purchase Protection, Partnership Protection and Limited Liability Protection.
It works by each controlling shareholder or partner taking out a policy that reflects the value of their shares. A plan would then need to be set up outlining how those shares should be valued with the option to buy given to those remaining as well as the option to sell for the dependents of the deceased.
We all like to feel special and being able to offer employee benefits is one way of making your workforce feel valued. Benefits shouldn’t be viewed as luxuries; being able to offer options such as life and critical illness cover and income replacement, can help you attract the best people for the job. It shows how serious your business is about looking after its best assets – your staff.
Employee benefits can assist your employees, or their family, financially by providing them with money either as a replacement income or as a lump sum. The insurance providers handpicked by LifeSearch offer a range of support services to aid recovery and rehabilitation. Employers gain access to services in preventing illness and legal guidance related to many different situations, including, life cover, critical illness and income replacement with a limited benefit amount or a continuous benefit amount.
Our friends at LifeSearch understand that a ‘one size fits all’ policy doesn’t always work, so they can help and advise you when it comes to setting up different levels of cover for different job roles. As the employer, you’d own and pay for the policy – rates are fixed for three years making it easier to budget. Plus, premiums can sometimes be offset against profits depending on the policy type – just ask your LifeSearch advisor for help. Even better for you and your employee, is that there isn’t always a need for medical underwriting – so there may be no health questions.
A policy that’s fit for purpose
We know – it’s a lot to take in but that’s why we’ve teamed up with life insurance specialists LifeSearch – who can help you through the maze of options and find a policy that works hard for your business.
And because we know that time is a valuable asset, you can talk to a real human being and ask real questions rather than rely on a set of FAQs; just call them on 0800 072 1147, they’re open all week from 8am to 8pm and to be extra helpful, they’re also available to speak to on Saturdays between 9.30am and 2.30pm. But you know us, at comparethemarket.com, we don’t do things by halves and neither do LifeSearch, because you can call them and an advisor will get back to you. So, take the initiative, be proactive and seal the deal – make a call today.