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Just as we take out buildings and contents insurance and protect our lives and incomes, businesses can buy financial products to make sure they can keep trading should the unexpected happen. We take a look at different types of business insurance.
What insurance is most important for a business?
There are many different types of insurance that apply to a business, covering everything from people to premises. Products include public liability cover, employers’ liability insurance and professional indemnity insurance. You might also seek insurance against compensation claims from members of the public, property damage to your business premises and more.
In this article we will focus on business protection insurance, which insures the people in your company as well as your finances.
Why would a business need to take out life insurances?
When you run a business, particularly a relatively small one, there are often key people involved who are crucial to your success.
Business Protection insurance is there to support you should one of those crucial people be unable to work due to illness or injury, or should they pass away.
What are the main types of Business Protection Insurance?
The main types of business insurance cover that focus on protection are:
- Relevant Life Plan
- Key Person Insurance
- Shareholder Protection
- Business Loan Protection
We will look at each type in turn to explore how it protects your business.
What is a Relevant Life Plan and how does it work?
Relevant Life Cover is a type of life insurance that is paid for by your business. It works in the same way as death in service benefits, which are standard for most employees in larger businesses and the public sector.
With death in service benefit, if an employee were to die within their working life, their dependents receive a multiple of their salary.
Relevant life insurance is a tax-efficient way for company directors to provide life insurance on their employees through the business. It is more tax efficient than taking a life policy as a consumer, because the business gets corporation tax relief on the premiums. This form of small business insurance is not open to sole traders.
You can set the level of cover to any value you choose, although as with any form of insurance, the greater the cover, the higher the premium. The money is paid out in the same way as any life insurance policy – to your family, tax-free.
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What is Key Person Insurance and how does it work?
Key Person Insurance is another form of life cover that can also incorporate critical illness protection. A central difference is that instead of payment going to the individual or the family, it’s paid to the business.
This type of cover is important if your business employs one or more people who are crucial to your trading. Examples might include an IT specialist who is integral to the solutions you sell or your top salesperson. If something happened to them, it would have a damaging effect on the business.
Key Person Insurance will bring in money to replace what would have been the deceased person’s income or turnover to help avoid business interruption. It could also help cover the costs of replacing that employee.
What is Shareholder Protection and how does it work?
Shareholder protection focuses on the shares of the company. Usually, if a shareholder dies, their share of the business passes to their family. But this can present problems – if your business partner died, would their family want to get involved in your company, or take their share of money out of the business?
Shareholder protection is life insurance on each of the shareholders. Upon their death, a lump sum is paid into the business which means the surviving partner can buy the other’s shares.
What is Business Loan Protection and how does it work?
Business loan protection is an insurance policy that’s useful if your company has borrowed money. Much as you would protect your own personal mortgage, business loan protection means that should a company director die, any debt left on the loan is paid by the insurance.
How do I explore and arrange business protection insurance?
Our expert team is here to explain the different types of cover and how they might benefit your business. Every company is unique so it’s important to seek advice on the most appropriate way to protect yours.
We will manage the whole process for you – exploring your needs, getting and comparing business insurance quotes and arranging appropriate cover for you. We’ll also be sure to contact you regularly to review your policies and check they are still fit for purpose.
Tax treatment varies according to individual circumstances and is subject to change.
Tax advice and trusts are not regulated by the Financial Conduct Authority.
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