What is business life insurance used for?
Business life insurance can support your business financially if you, your business partner or a valuable employee becomes critically ill or dies.
There are several different types of life insurance for business owners that fall under the umbrella term ‘business life insurance’. These can provide the cover you need to protect your company and stop your business grinding to a halt if key staff are unable to work.
Five types of life insurance for business owners to think about
The five key types of life insurance for businesses to consider are:
Key person insurance
Relevant life insurance
Business loan protection insurance
Shareholder protection
Employee benefits, such as critical illness cover and income protection.
1. Key person insurance
Key person insurance could protect your business against the financial effects of losing a valuable employee through critical illness or death.
This type of policy is taken out on the life of your key person. Premiums are calculated by working out how profitable your key person is for your business.
Your business would also be the beneficiary if your leading employee was unable to work because of a critical illness that’s specified in the policy.
The proceeds from a claim can be put towards whatever the business finds necessary – whether that’s recruiting new staff or helping to cover a loss in profits.
2. Relevant life insurance
If you’re a small or medium-sized business, relevant life cover can offer a tax-efficient way of offering death in service benefits to employees. Directors can also take out relevant life insurance on themselves.
Relevant life insurance is designed to pay out to the insured person’s family if they die or are diagnosed with a terminal illness while employed by the company during the term of the policy.
Relevant life insurance can sometimes be classed as a business expense, so there may be no income tax to pay.
Additionally, the policy can be written in trust, to protect the recipients of any pay-outs against inheritance tax bills.
3. Business loan protection insurance
Business loan protection could help your business pay off any outstanding debts in the event of critical illness or death.
Debts can range from directors’ loans, commercial loans and mortgages, to venture capital loans, overdrafts and personal guarantees.
This type of insurance can be arranged on a level or decreasing term basis.
4. Shareholder protection
If a business partner or shareholder dies, their assets usually go to their dependants. This would include any stake in your business.
With a share protection agreement, remaining colleagues have the opportunity to buy the deceased’s share of the company while making sure their family receives the financial support they need.
5. Employee benefits
Being able to offer employee benefits is one way of making your workforce feel valued. Offering options such as critical illness cover and income protection can help you attract the best people for the job.
These types of benefits could provide financial support to your employees and their families when they need it the most. It shows your business is serious about looking after them.
Find a business life insurance policy that’s fit for purpose
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FAQs
Can I pay for business life insurance through my business?
Yes, you can pay for business life insurance through your business. In fact, it might work out cheaper. You could save thousands of pounds by buying suitable cover in a tax-efficient way.
A relevant life insurance policy, paid for by the company, allows a business to claim corporation tax relief. It also enables the waiver of National Insurance payments for the employee covered by the policy.
The employee then benefits from not having to pay income tax or National Insurance on the premiums.
Is business life insurance tax deductible?
Certain types of policies, like relevant life insurance and key person insurance, can be classed as a business expense so, yes, they would be tax deductible.
And if you own a limited company or are self-employed, insurance costs can be deducted through your tax return.
Tax relief on company life insurance may depend on certain criteria. For example, deductions may only be possible if the policy term doesn’t go beyond the period of the key person’s usefulness to the company. So, you’ll need to check for these on your policy documents.
Unfortunately, personal cover policies can’t be claimed as a business expense and aren’t tax deductible.
Are pay-outs from business life insurance made to the company?
Typically, the company will own the policy and pay the premiums. But depending on the type of cover, the money will either go to the business itself or the employee and their family.
If you’re unclear about who receives a pay-out on a business life insurance policy, make sure you ask when taking out cover or check your policy documents.
Can I take out business life insurance as a freelancer?
Freelancers working as sole traders could be eligible for business life insurance. Business protection and relevant life insurance policies are probably the most suitable options.
Is business life insurance right for my business?
Whether business life insurance is right for you will depend on a few factors:
The level of cover you need
Any cover you may already have
Your employees’ health
Your business’ other financial responsibilities.
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Tim Knighton is an expert in building and managing relationships with big brands for the benefit of customers, with more than 20 years of experience. He seeks out the right products that look after you and those you love most during the toughest times.
Stephen Maunder is an experienced personal finance editor, having spent more than a decade working for consumer print and online titles. He won several industry awards for his personal finance features at Which?, before becoming Deputy Editor at Compare the Market.
Faith Archer is an award-winning money journalist, previously Deputy Personal Finance Editor at The Daily Telegraph and now a columnist at Yours and blogger at Much More With Less. Faith has written about money matters as a freelance journalist for publications including The Telegraph, The Financial Times, the Sunday Times, Mirror Online, Woman&Home, Woman, Woman’s Weekly and the government’s Money and Pensions Service, as well as appearing regularly on BBC Radio.
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