5 Ways to Protect Your Business 2023

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5 Ways to Protect Your Business 2023

When you are a business owner you need a lot of insurance, I know…

The thought of someone suggesting extra insurance on top of everything else that you already have, can feel like too much.

But with tax advantages on a lot of these policies, it’s a smart way for business owners to make the insurance world work for them.

In this blog we are going to be talking about:

If you are considering any of these insurances please please please, speak with a specialist protection insurance adviser. We are the experts in the technicalities of these insurances and you can end up with the insurance not doing what you want it to and some nasty tax issues, if you get it wrong.

I’m going to give you a really stripped down summary here, but you can use the links above to get a lot more detail on these insurances.

1. Relevant Life Insurance

This is one of the most popular business protection policies that we arrange for people. It’s life insurance that is arranged through and paid for by your business. The premiums can be offset against your corporation tax too, bonus!

Here are some extra bits:

This is like death-in-service cover for you or one of your employees, if you choose to insure them as an employment perk.
It is quite common to insure yourself for 5x your annual salary to your retirement age.
You can usually change it to personal life insurance if you leave the company, or the business shuts down.

A big no no that we see is people looking at relevant life insurance to cover their personal needs. Let’s say you have a mortgage of £250,000 over 22 years. You then arrange a relevant life insurance policy of £250,000 over 22 years and you will be age 53 when the policy ends.

This could raise eyebrows with HMRC as it’s really unusual for a relevant life insurance policy to end at age 53. In this case they could well think that you were trying to cover a personal debt with relevant life insurance, to avoid tax. If this does happen it won’t be you handling it, it will be your loved ones.

Not a good position to be in and why we suggest that there is no point in messing about with stuff like this, an adviser can make sure that your relevant life insurance is set up in the right way.

2. Shareholder Protection

A lot of business owners need shareholder protection but ask for keyperson cover. These two policies do very different things and it’s important to keep focused upon where the money will go, if there is a claim.

Shareholder protection is usually life insurance or critical illness cover and it is designed to:

Makes it easy for shareholders to buy the shares from a critically ill shareholder, or their family if they pass away
The business can get back to doing what it does best
The person or their family gets a cash payout to compensate them for the shares

There are quite a few ways to set this up. Sometimes the business pays for the policies but the premiums come out of your personal earnings. Sometimes the business pays for it completely, but then you can potentially have some issues if you have creditors and a claim is paid.

There are pros and cons either way and it’s by using an adviser firm like us that you can have confidence that your insurance is set up right.

3. Executive Income Protection

This is an amazing product that can be arranged for you as a business owner or potentially one of your team. This insurance is designed to pay you a monthly income if you are ill and cannot work for a while, or potentially ever again. It can even cover some of your pension contributions.

How it works for business owners:

You set up an income protection policy that is paid for by your business
It can be offset against your corporation tax.

When you set it up for an employee it also gives you an advantage as a business owner. You will:

Find that the insurer pays the employee’s wage and you have their usual salary to do with as you please.
You could retain this in the business, hire temporary cover, pay to train another member of staff to help cover the workload, etc.

There’s a lot of things that you can do with income protection and you can build it in a lot of different ways. It doesn’t have to cost a silly amount of money, it’s a brilliant employee retention strategy and for you it’s going to help you keep to your long term financial plans.

4. Keyperson Cover

Another great policy and it is absolutely not shareholder protection (I’m sure you can tell the conversations I’ve had more than once…). Keyperson cover is set up to benefit your business in the event of your death or critical illness.

Everything else so far has been focused upon insurance to benefit you or your loved ones. This is now full focus on protecting the business.

Keyperson cover:

Will pay a lump sum of money to your business if you die or are diagnosed with a critical illness.
It helps the company to cope with your absence, hopefully keep creditors at bay, pay for your replacement and their training.
The premiums are paid for by the company and offset against corporation tax.

You can have keyperson cover if you are a business owner or shareholder, but, and this is a big but, you cannot usually get tax advantages on the premiums if you own more than 5% of the company shares. You might be able to, but the default position is no and you will need to apply for permission if you want this.

As well as this keyperson cover needs to be setup in specific ways to meet the eligibility criteria for the tax advantages which is why you should speak to an adviser to set this up for you.

5. Group Protection

Group protection covers life insurance, critical illness cover and income protection. You don’t have to have them all, you can pick and choose what you like and they are something that quite a lot of people look for in an employer. You can start getting group protection once there is at least 2 people on the company payroll.

Here’s a bit about how they work:

Group Life Insurance – paid for by the business, premiums can be offset against corporation tax.
Group Critical Illness Cover – paid for by the business, premiums are a benefit in kind.
Group Income Protection – paid for by the business, premiums can be offset against corporation tax.

With group protection insurance it comes with what is known as free medical underwriting, up to certain levels of cover. This basically means that everyone is insured without asking details about their medical history, travel or high risk sports.

For life insurance this free medical underwriting limit is often a minimum £500k and for income protection a minimum £60k per year (depending upon your salary).

Critical illness cover works differently. There is free medical underwriting so you can set up the policy without any underwriting, but, it will exclude claims for pre-existing conditions.

You know what I’m going to say, it’s best you speak with an adviser. For group life insurance especially this is essential especially if you have any protected pension status. If the policy is set up the wrong way you will instantly lose your protected pension status, and you cannot get it back.

We are the experts in arranging business protection insurance. We offer no obligation quotations and will make sure that the business protection insurance that you gets, actually delivers what you need.

Protection insurance – what you need and how to get it

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Kathryn Knowles
September 11, 2023

Categories: Life Insurance

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