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Life insurance for business owners

Life insurance for business owners

Running a business is hard work and you’ll want to protect it. Lots of small businesses (and bigger ones) take out insurance for their equipment and premises, and here’s why they should also think about getting specialist business life insurance. 

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You can speak to LifeSearch’s advisors for more information on 0800 072 1147 (Mon-Thurs 8am - 8pm, Fri 8am – 7pm, Sat 9am - 2.30pm and Sun: 10 am - 3.30pm)

Kamran Altaf
From the Life team
minute read
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Posted 15 APRIL 2019

What is business life insurance used for?

Business life insurance can support your business financially if something happens to your staff, your partners or you. There are lots of different types of life insurance that fall within the umbrella term of ‘business life insurance’ to provide the cover you need in a policy that protects your company.

Here are five key types of business life insurance cover to think about:

5 types of insurance every business owner should think about:

1 - Key Person Insurance

This is aimed at protecting your company against losing the one person it simply couldn’t be without. Think about how your business would function without your star performer if they became ill and couldn’t work for some time. How would you cope? Key person insurance might be the answer.  

This type of policy can be taken out on the life of your key person. Premiums are calculated by working out how profitable your key person is for your business. It’s paid for and owned by your business, so your business would also be the beneficiary in the event of your leading employee being unable to work. The proceeds from a claim can be put towards whatever the business sees fit to invest in – whether that’s recruiting new staff, helping to cover a loss in profits or easing cash flow.

2 - Relevant Life Insurance 

If you’re a small business with fewer than five employees, life cover can offer an alternative to group life insurance schemes and can be a tax efficient way of offering death in service benefits – which can give staff and their families’ real peace of mind. It can be a valuable addition, or a starting point, for any benefits package while helping to retain your best people or recruit new talent.

Life cover can sometimes be claimed as a business expense rather than classed as a ‘benefit-in-kind’, so there may be no income tax to pay. Additionally, the policy can be written ‘in trust’ and so could protect you against inheritance tax payments. A claim can be made if the person named in the policy passes away or has a terminal illness.

3 - Business Protection Insurance

Business protection insurance, sometimes called business loan protection, can cover various types of debt – from director’s loans, commercial loans and mortgages, to venture capital loans, overdrafts, credit cards and even personal guarantees. Unlike most life insurance pay-outs, when it comes to business protection insurance a claim can be paid to a business instead of a family member.

Ask yourself what would happen if a business you work with in your supply chain goes bust, or a loan suddenly 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.

Policies can be taken out for employees and business owners with the amount of cover reflecting the amount of debt. You might want to tailor the policy to mirror any terms set out in the borrowing agreement. 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.

4 - Ownership Protection

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 dependants – that would include any shares in your business. And what the dependants want may not be what your business needs. For example, they may prefer to receive a 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.

With these options, each controlling shareholder or partner takes 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 dependants of the deceased.

5 - Employee Benefits

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  critical illness cover  and income protection 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 the people at your company, or their family, by providing them with money either as a repayment or as a lump sum. 

Find a business life insurance policy that’s fit for purpose 

It’s worth taking a little time to see if you can get peace of mind that your business could get a lifeline if the worst happens.

Call our friendly team

You can speak to LifeSearch’s advisors for more information on 0800 072 1147 (Mon-Thurs 8am - 8pm, Fri 8am – 7pm, Sat 9am - 2.30pm and Sun: 10 am - 3.30pm)

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