Life insurance plans : Business Protection

If you have a business loan or business mortgage, and a business owner. you may want a life cover which pays off the mortgage or loan in the event of your or your partner's death.

A normal life cover will pay into your estate, not to the business, while business covers can be claimed against tax.

Many business people recognise the value of property and liability insurance but they often forget the part that life insurance can play in protecting the business from the financial loss that the death of a key individual could cause.

The business may rely on a key person who is vital to the profitability or even the existence of the business.  You can protect your business from the disruption, which might follow the death of such a person by taking out a life insurance policy on his or her life.  The policy can be used to cover costs of finding and training a successor. There may be liability to corporation tax in respect of some – or all – of the amount paid out under the policy. A sales director may have valuable contacts that may be lost. A technical expert may be essential to the development of a new product. The effects can cause severe difficulties - both practically and financially.

One of the great risks of a business partnership is that one of your colleagues may die, with his or her share of the business passing to someone else. That person may have little interest in the business or - at worst - may be hostile to your objectives. Partnership insurance is a pre-arranged scheme to ensure the surviving partners have enough funds to buy out the interest in the business, or compensate the deceased’s dependants.

Amid the time-consuming, complex business of running a company, scant attention is paid to what might happen if a shareholder dies. In the interests of financial security, business stability, and continuity - particularly for private limited companies where there may only be a small number of principal shareholders - it is essential to provide a safety net following the loss of a shareholder:

• Shares may go to the deceased’s family, which has no interest in the business and would prefer a cash sum

• The company or other shareholders will want to retain control by buying lost shares - but may not have the resources to do so

• The shares may be taken over by someone who does not share the company’s objectives - and may even be a competitor

Shareholder Protection life cover enables funds to be available in the event of the death of a shareholder. This ensures that the company can continue to operate unhindered while the ongoing shareholder or their family receives fair compensation. It provides documentation to enable the surviving shareholders to receive the funds free of tax.

Benefits for shareholders. Life insurance can protect you and the other surviving directors from any withdrawal of capital following the death of a director. The payment from a life insurance policy may help with the purchase of the deceased director’s share of the business.

Although some insurers offer specific products for different types of business cover, others offer business protection which can be used for one or more of the differing needs above. So we only list covers for businesses as Business Protection rather than split them into sub categories.

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