What to know about advising on business protection

By addressing questions such as these, advice for business protection helps to negate the financial uncertainty that often follows the death or serious illness of a business owner or key employee, by building a portfolio of cover to protect the business that may include all or some of the following:

• Business loan protection
• Share protection
• Key person replacement or profit protection
• Relevant life plan

Advice for business protection often also includes a recommendation to consider a relevant life plan (RLP).

These provide individual “death in service” cover for the benefit of an employee’s family.

Relevant life policies are paid by the business and can be a tax-efficient way of providing personal life insurance for key employees and company directors; they are often used when the business is not large enough to qualify for a group death in service scheme, or may be used to top up existing scheme cover.

Neither one nor the other

The common factor with all these ideas is that they cover key individuals within the business.

The cover closest to business protection comes from personal life insurance, critical illness cover and group protection policies. 

There are two key distinctions, however. The first is that, with the exception of individual life insurance policies, the cover is primarily designed to protect the business, to enable it to continue trading and safeguard its future in difficult circumstances.

Whereas group or individual insurance for life and critical illness (or income protection) provide cover for those solely affected or their loved ones, business protection provides financial support for those left to keep the business running. 

The second key difference that separates business protection from personal protection is that the business pays the premiums.

There are, of course, a wide range of considerations around business protection that need to be taken into account.

For key person cover, loan protection, relevant life plans and some (but not all) shareholder protection policies, the business takes the cover out on the life of the employee and is responsible for paying the premiums. 

This is particularly important for relevant life plans.

Relevant life plans are paid for by the business and can be claimed as a business expense, they are also not classed as an employee P11D benefit.

For example, if a director is either paying for life cover personally from taxed income, or instead uses the business to pay for it under a P11D benefit-in-kind, relevant life cover may offer an alternative tax-efficient way of paying for personal life insurance. 

For an annual premium being paid out of the employee's net pay of £1,000, a policy could save the employee and company up to £769.95 in tax and national insurance contributions if written as an RLP.