How to write business protection

It’s important to consider critical illness and income protection options alongside life cover Kevin Carr

By taking out share protection the business can ensure that it has the right (and the finances) to purchase shares should anything happen to a partner in the business.

Relevant Life Cover

Relevant life cover is a tax-efficient form of life cover. It’s used by smaller employers looking to provide ‘death in service’ benefits who would not have enough employees for a group scheme, or directors requiring life cover, which doesn’t impact their pension lifetime allowance.

Recently, Aviva caused a storm in the market by introducing the first relevant life cover with critical illness cover attached to it. Heralded as a game changer for the business protection market, Legal & General and Royal London have since taken objections to the regulator, believing the cover is not allowable within HMRC tax treatment of relevant life plans. The spat rumbles on, so watch this space.

The gap

As with individual life cover, there is a huge difference in the number of businesses that should have business protection than have actually taken out cover. Legal & General research found the business protection ‘gap’ to be £1.35trn.

While research from LV= showed 29 per cent of businesses don’t think they need protection, despite almost a quarter of firms with cover having made a claim, stating it can be difficult to convince clients about the need and value of protection.

Victoria Slade, independent protection expert at adviser firm Drewberry said: “the complexity of this type of cover, coupled with the growth in limited companies and partnerships, have resulted in huge risks to these company set ups, as they remain uninsured and vulnerable being exposed to some key risks.

Often, the reason businesses haven’t considered or arranged cover is because they either hadn’t considered such an eventuality, or, they’re simply ‘too busy’ to arrange getting it into place.”

Dougy Grant, protection director at Aegon UK added: “Business protection should be a key consideration for small to medium sized businesses. Without it, it’s incredibly difficult to ensure continuity or implement succession plans should anything happen to the business owners or key employees.

“Within the industry we know it’s a problem but inertia and reluctance to discuss this sensitive topic mean far too few business have put plans in place.”

The opportunity

With the number of small businesses increasing year-on-year, there is a clear opportunity for advisers to grow their business protection offering.

Roy McLoughlin at Master Adviser believes the increased number of LLPs (limited liability partnerships) in particular, and the different requirements they have in terms of tax structure, offers a real opportunity for advisers.