Business Protection Insurance

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What is Business Protection Insurance?

Business protection insurance refers to any type of insurance policy that may be taken out to protect a business, and or its employees. It’s intended to assist with the continuity of business when a key employee or owner is lost, whether that is as a result of their death, or their inability to continue working due to a long-term or terminal illness, or permanent serious disability. 

This important protection is often overlooked, particularly by small businesses, however, the protection it can provide to partnerships, shareholders, sole traders and key employees should not be underestimated. They can insure multiple employees, and provide a cash lump sum at the point of claim.

What are the different types of business protection?

Key person insurance

Key person insurance is a type of life insurance policy that can be used to fund the replacement of staff and loss of income that occurs when a key employee is lost. This could be a:

  • Business owner
  • CEO
  • Director
  • Financial Director
  • Technical Director
  • Another employee with a skill that is difficult to replace

Relevant life insurance

This is a type of life insurance policy that is typically taken out directly by company owners or directors to provide financial support to their families in the event of a loss.

It can also be a useful policy for those businesses that don’t have enough employees to create death in the service benefits package, as it reduces the cost of individual life insurance and is tax and National Insurance deductible.

Business loan insurance

This is a type of life insurance that is used to repay business loans, or similar debts, if the  owner, partner or business director dies.

Shareholder protection insurance

This type of life insurance is used to enable surviving business partners to purchase the shares of an owner or shareholder that dies. This allows the remaining shareholders to retain control of the business in these circumstances.

Speak To An Expert

We offer complete flexibility around you and can meet either face-to-face or online via a video consultation. And with us all being qualified in our specialist areas and having access to a wide range of lenders, we are able to help you no matter which part of the mortgage journey you are at.

What are the pros and cons of business protection insurance?

Pros

  • It can enable businesses to continue trading following the loss of a key employee through a cash lump sum of financial support.
  • Business loan protection and/or key person insurance can be a requirement of business lenders, so having the policies in place will improve your potential for commercial borrowing.
  • It can prevent lenders from approaching a guarantor or the estate of a key employee that dies during the loan term, in order to settle outstanding debts.
  • It can afford surviving shareholders or business partners the ability to buy shares from another if they are diagnosed with a critical illness, or from their estate, in the event of their death.
  • It can help to fund the repayment of business loans if a key employee becomes terminally ill, or dies.

Cons

  • When written in trust, relevant life plans can become liable for income tax under the ‘pre-owned asset’ legislations.
  • Shareholder protection insurance may not be appropriate for businesses that have been trading less than five years, given the rules laid out in The Companies Act 2006. When the strict rules of this legislation are not adhered to, there is a potential that the shares will incur a higher tax liability.

How much does business protection insurance cost?

The cost of business insurance will depend largely on the size of the business, and how extensive the policy. For example, it may be possible for small businesses to set up public liability cover for little more than £100, however employers’ liability insurance is required by law if you hire any employees, so only sole traders would be able to avoid this additional cost, which can range between £60 and £210 per employee, depending on the risk involved with their role.

It’s important to consider the specific risks of your individual company when deciding which types of business protection insurance are relevant and/ or necessary. Business insurance in the UK can cost anywhere from £50 to multiple thousands of pounds per year.

How can a Mortgage Broker help your business?

Mortgage Brokers like ourselves are well placed to help businesses with all aspects of their commercial finance needs, from borrowing through to protection. 

We have access to a wide range of policy providers and can help you find the policies that not only offer your business the greatest benefits but offer competitive premium rates that suit your budget. We don’t charge for an initial consultation, and our helpful brokers are available for online, as well as in-person appointments, to suit your preference