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20 Things You Need To Know About Business Protection


In 2020 we’ll have been in business for 20 years! To celebrate, each month we’re sharing 20 top tips about topics that are closest to our heart. Our aim is always to provide you with the best possible information so you can make informed financial decisions. This month we’re talking about everything you need to know about business protection.

20 Things You Need To Know About Business Protection

No-one wants to think about dying or becoming seriously ill. But the truth is, if you own or co-own a business and either you or one of your co-owners were to become seriously ill or die, it could lead to serious problems for the revenue and profitability of your business.

Not only could this threaten all the hard work you’ve put into building your business, it could also have a life-changing impact on the people you leave behind.

And the situation is complicated by the fact that the best business protection policy to meet your needs will vary depending whether you need protection against death or serious illness of a sole trader, a business owner or co-owner, or a key employee.

The good news is, with sound planning you can get business protection that covers all eventualities. And regular reviews can ensure that your plans remain suitable for your circumstances even if they change.

Here’s everything you need to know about business protection.

Business Protection – The Basics

  1. Loss of revenue – If you were to die, or are unable to work because of illness or injury, your business could lose revenue. This might lead to reduced profits or increased losses for your business, reduced income for the owners and their families, difficulties repaying business debts and meeting costs, loss of confidence among suppliers, clients and lenders, and increased costs, for example for recruitment of new staff.
  2. You need business protection to give you the peace of mind to know your family, staff and company will be taken care of if you die or can’t work due to serious illness.
  3. Premiums can often be paid in a lump sum or by making regular payments.
  4. Usually, the insurance is taken out by the business, but it’s best to get advice about setting up and holding the most appropriate insurance to suit the circumstances of your company.
  5. The cost of the insurance is dependent on factors such as the sum insured, the terms of the cover, the age and health of the insured.
  6. Usually the premiums paid are not tax-deductible, but the lump sums paid due to death or serious illness are usually tax-free.

The death of a business owner

  1. If a business owner dies without appropriate measures in place, the future of their business is subject to inheritance law. This means the co-owners might not be able to continue to run the business, and the family of the deceased might not receive financial compensation.
  2. If you put life policies in place for each co-owner and one of them were to die the other owners would receive a tax-free lump sum that would enable them to buy the deceased owner’s share and continue to run the business.
  3. This also protects the family of the deceased who would receive the proceeds of the sale.
  4. If the other owners were to receive the deceased’s share without payment, life insurance in trust is usually needed to compensate the deceased’s family.

Serious illness of a business owner

  1. If you own a business and become seriously ill, you might not be able to work for a while or, in fact, at all. You need business protection to make sure your company can continue to run in your absence.
  2. If you have the correct insurance in place, it could provide a lump sum in case you need to sell your share of the business.
  3. Business protection can also provide the means to cover your income, and some of the costs incurred such as revenue replacement, debt repayment or other expenses.

Key employees

  1. If a key employee of your company were to die, or to have a serious illness, it could also cause financial damage to your business.
  2. Key person insurance can be taken out to cover costs incurred by the death or loss due to illness of an employee whose knowledge, skills or overall contribution are important for the financial sustainability of the company.
  3. Incentives for key employees. Many companies offer insurance as part of their reward packages for key employees. They might offer income replacement or protection cover, for instance, in case they had to be absent from work due to long-term sickness.
  4. Or they might offer family protection insurance, the proceeds of which would usually be paid under a trust to your employee’s family free of inheritance tax.

Sole traders

  1. As a sole trader, your death or serious illness could have disastrous financial consequences for you and your family.
  2. If you take out appropriate life insurance, you can replace the income from your business in the event of your death or if you can’t work due to serious illness.
  3. You need to plan carefully to ensure you get the right amount of protection to cover the needs of your family. Writing the policy in trust will help ensure funds are paid promptly to your beneficiaries.

If you want to learn more about business protection and receive advice tailored to your personal circumstances, please get in touch.

Click here to download our Business Protection Guide

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