Protecting your Business

As a business owner or in a partnership, you might wear many hats - leader, strategist, marketer, technical expert and often, the financial backbone of your enterprise. But amid the hustle of daily operations, one crucial aspect often gets overlooked: protecting yourself, family and your business or fellow partners against life’s uncertainties.

This is where business insurance comes into play. Insurance solutions are not just about peace of mind—they are essential tools for safeguarding your business, your family and your financial future.

Understanding Life Cover and Critical Illness Cover

Life cover provides a lump sum payment to your beneficiaries if you pass away during the policy term. For small business owners, this can mean:

• Ensuring your family is financially secure.
• Covering outstanding business debts.
• Providing funds to keep the business running or to facilitate a smooth succession.

Critical Illness cover pays out a lump sum if you are diagnosed with a serious illness such as cancer, heart attack or stroke. This payout can help:

• Cover personal and business expenses during recovery.
• Pay for medical treatments.
• Hire temporary staff or delegate responsibilities.

Why Business Owners and Partners Need These Covers

Unlike salaried employees, small business owners and partners often lack the safety nets of employer-provided benefits. These covers are especially vital because:

1. You Are the Business: In many small businesses, you as the director/partner may be the key revenue generator. If illness or death strikes, the business could grind to a halt. Life and illness cover can ensure that operations continue or wind down gracefully without financial chaos.
2. Protecting Your Family: Your family may rely on your business income. Life cover ensures they are not left with debts or financial burdens. Illness cover helps maintain your household income if you’re unable to work.
3. Continuity: If you have business co-directors, or are in a partnership, a life insurance policy can fund a buy-sell agreement, allowing the surviving directors or partner to buy out your shareholding. This avoids disputes and ensures the business stays in capable hands.
4. Covering Business Debts: Many small business loans require personal guarantees. If you pass away or become critically ill, your family could be liable. Insurance can cover these debts, protecting your personal assets.

Types of Life and Illness Cover for Business Owners

• Personal Life cover: This is the most common form of life cover. It pays out to your chosen beneficiaries and can be used to support your family or settle personal and business debts.
• Key Person Insurance: This policy is taken out by the business on a key employee or owner. If that person dies or becomes critically ill, the business receives a payout to cover lost revenue or recruitment costs.
• Shareholder or Partnership Protection: This ensures that if a director/shareholder or partner dies or becomes critically ill, the remaining owners can buy their share of the business, funded by the insurance payout. Agreements would be drawn up between parties and deposited together with the company articles and memorandum of associations or partnership agreements.
• Relevant Life Insurance: A tax-efficient life insurance policy for directors and employees of small businesses. It’s paid for by the business but doesn’t count as a benefit-in-kind, making it attractive for limited company owners.

How Much Cover Do You Need?

The amount of cover depends on several factors:

• Personal needs: Mortgage, family living expenses, children’s education.
• Business needs: Outstanding loans, cost of replacing key staff, business continuity plans.
• Succession planning: Ensuring a smooth transition or exit strategy.

We can help you calculate the right level of cover based on your unique situation.

Tax Considerations

In the UK, premiums for business-related life insurance (like key person or shareholder protection) may be tax-deductible. However, personal life insurance premiums typically are not. Critical illness cover is usually not tax-deductible, but the payout is often tax-free.

Common Mistakes to Avoid

Underinsuring: Many business owners and partners underestimate how much cover they need.

Not reviewing policies: As your business grows, your insurance needs change.

Mixing personal and business cover: It’s best to keep them separate to avoid complications.

Ignoring critical illness cover: Severe Illness is more likely than death during working years.

Risk management: Confidence that the organisation will survive and be able to honour contracts and provide continuity for clients and staff.

Let’s Take a Scenario…

Mathew is a 50-year-old engineer running a successful metal fabrication company. He’s the co-owner with Simon and they employ 20 staff. He is married, has a mortgage, three children of school/university age and a business loan.

If Mathew were to pass away unexpectedly:

• His family would lose their main source of income.
• The business might collapse without his leadership or expertise.
• His family could be liable for the business loan.
• Simon may not be able to afford to buy out Mathew’s share.
• Simon is at risk that Mathews family could interfere with the running of the business.

With a life cover policy in place:

• Mathew’s wife receives a lump sum to cover living expenses, debts, childcare/ education costs.
• A key person policy could provide funds to hire a new manager.
• A directors protection plan would ensure a smooth transition to Simon.

Getting Started

• Assess your needs: Consider both personal and business obligations.
• Speak to you atomos financial planner: They can help tailor a plan to your situation as well as consider the related inheritance tax consequences of passing on your business.
• Compare policies: Look at coverage, exclusions, premiums, and flexibility.
• Review regularly: Update your cover as your business and life evolve.

Conclusion

Life and critical illness cover are not just for large corporations. For business owners, they are essential tools for risk management and financial planning. These policies provide a safety net that protects your loved ones, your employees and the business you’ve worked so hard to build.

By taking proactive steps today, you can ensure that your business and family are protected—no matter what the future holds.

Here when you need us

Business planning can be complex. Our financial planners can support you - getting to grips with what you want to achieve and finding the best solution for you, your family and your business. Speak to your financial planner if you, or someone you know, need our help.