Work being done in a small workshop

Business protection

More than half of small and medium-sized businesses believe they would have to stop trading within a year of losing a key individual to death or critical illness.

Business protection is what keeps a company trading when the owner, a director or the one person who knows how everything works is suddenly not there. The damage compounds: the work slows, the customers notice, the good staff start looking, and the shares can end up with someone who has never run anything.

It is usually missing because nobody owns the question. The accountant assumes the adviser has raised it. The adviser assumes the solicitor has. The solicitor drafted the shareholders' agreement three years ago and has not been asked since.

What business protection covers

Key person protection
Protects the company against the financial effect of losing someone it depends on. The proceeds are paid to the business, to cover lost profit and the cost of replacing them.
Shareholder protection
If a shareholder, LLP member or partner died, could the others afford to buy their share? Shareholder protection provides the money so ownership stays where it should.
Share protection arrangements
Lets the surviving owners buy the deceased owner's share from the estate, and gives that family cash and a willing buyer for a stake they may not want.
Relevant life cover
Individual death-in-service cover the company pays for, usually treated as a business expense and normally outside the employee's estate.
The paperwork behind it
Cross-option agreements, correctly drafted trusts and an up-to-date valuation are what turn a policy into something that executes when it is needed.
Critical illness on the same lives
Cover can pay on a specified critical illness diagnosis as well as on death, if chosen at the outset and at extra cost. A serious illness can remove someone from a business just as completely.

Getting the structure right

Who owns the policy, who pays for it and who receives the money all carry tax consequences, and they are different for key person cover and share protection. Set up properly, the money lands where it is needed and the tax is understood beforehand. Set up carelessly, a claim can trigger a corporation tax charge nobody expected, an inheritance tax problem, or a payment to entirely the wrong person.

We will do this alongside your accountant

Because the same firm advises the business and the individuals, the legal agreements and the policies can be made to say the same thing. If you already have a shareholders' agreement, bring it: an agreement that obliges the survivors to buy is only useful if they have the money to do so.

Questions people ask us

How is the amount of key person cover calculated?

Common approaches are a multiple of the person's salary, their contribution to gross profit, or the cost of recruiting and getting a replacement up to speed. We work through which best reflects the actual exposure in your business.

Is the premium tax deductible?

Sometimes, and it depends on the purpose of the policy and who benefits. Broadly, key person cover taken purely to protect profits may attract relief, while cover protecting a capital asset or a shareholding usually does not. We will confirm the position with your accountant before you commit.

We already have a shareholders' agreement. Is that enough?

The agreement sets out what has to happen. Share protection provides the money to do it, because an agreement obliging the surviving shareholders to buy only works if they can pay. You need both, and they need to be consistent with each other.

What if a shareholder becomes critically ill?

Cover can be arranged to pay on a specified critical illness diagnosis as well as on death, if it is chosen at the outset and at additional cost.

Start with a free conversation.

Tell us what is on your mind: a pension you have lost track of, a fixed rate ending, a will you keep meaning to write. We will tell you honestly whether we can help.