You no doubt insure your premises and hardware but do you have cover in place to protect your business if something were to happen to your most important asset; your people?
Think for a moment, how the death of a shareholder, partner or director would affect your business?
In the event of a shareholder or partner dying, the integrity of the business for the surviving partners or shareholders can be threatened, while potentially leaving the family of the deceased in difficult financial circumstances.
The family are likely to inherit the deceased individual’s share of the business, when they would probably prefer a cash lump sum, while the remaining business member(s), who would rather have control of the entire business, inherit a new business partner in the form of the deceased partner’s wife or other beneficiary.
One effective solution is a life insurance policy which enables the remaining business partners to buy-out the beneficiaries of their deceased colleague – in this way, the business structure remains the same while the family receives a useful lump sum.
Similarly, does your business have a valuable individual who would be missed?
It may be that you have a key manager, top salesperson, Director or someone with specific knowledge who would be hard to replace immediately. To cater for this, a business can take out a type of life and/or critical illness insurance, called keyperson insurance, on individuals who are considered to be of particular value.
The policies will pay out a lump sum in the event of their long-term serious illness or death, which can help to ease the effect of a drop in profits, help with recruitment costs or meet any guaranteed liability the individual has taken on for the business.
Life Insurance – A Tax Warning
Many employers provide a death-in-service life insurance lump sum, usually a multiple of salary. For higher earners, or those with generous multiples, this can result in a significant lump sum being payable on their death. While put in place for perfectly sound and logical reasons, this payment could trigger a large tax charge on the beneficiaries of such policy.
This is because it is the combined value of any such lump sum payment and the value of the deceased employee’s pension policies which are judged against the Pensions Lifetime Allowance for tax calculations. If the total of both life insurance and pension funds is greater than the Pensions Lifetime Allowance, then a substantial tax charge of 55% is due on any amount above the allowance, payable by the beneficiaries.
A special type of life insurance, called ‘Relevant Life’, can be set up to avoid this – this is just like ordinary life insurance, but is not counted towards someone’s pension benefits – and so is not liable to the Lifetime Allowance tax charge.
There are many ways that Business Protection can help companies minimise their risk and plan with confidence. If you would like to find out more about the steps you could take to protect your business, do contact us here.
- This is a non-investment pure protection policy and has not cash in value at any time
- Some conditions may not be covered by a critical illness or income protection policy
- If you stop paying into a protection policy, you will no longer be covered
- There maybe detrimental tax implications from a payout of Business Protection, you should contact your accountant to explain more