Key Person Protection is a form of business insurance that protects a business against the financial impact of losing a key person—whether through death or a specified critical illness during the policy term. The absence of a crucial staff member or business director can severely disrupt the company, leading to decreased sales, increased costs to hire a replacement, or added stress for the remaining team.

A Key Person is typically an individual whose knowledge, skills, or experience are vital for the business to operate efficiently and profitably. This could range from a director to a senior staff member, depending on the nature of the business. For example, a software development company might view the loss of a programmer as a significant blow, while a sales-focused company might be heavily impacted by the loss of a sales director.

Key Person Insurance is owned by the business, not the individual employee. The business is financially protected through this insurance, and it may be a tax-deductible expense.

For small businesses that lack enough employees to offer a group life insurance scheme, a Relevant Life Plan can provide a solution. This is a term assurance policy offered by employers to provide death-in-service benefits for their employees. If the employee passes away or is diagnosed with a terminal illness during the policy term, a lump sum is paid out.

It’s important to note that Relevant Life Plans aren’t available for sole traders, equity partners in a partnership, or equity members of a Limited Liability Partnership (LLP). This policy is beneficial for the company, as it is considered a legitimate business expense, and the payout goes to the employee’s family or dependents.

The business does not benefit directly from the payout, and Relevant Life Cover is written in trust, ensuring the money is received by the designated beneficiary. Additionally, the lump sum is typically tax-free.

– The Levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority

The death of a business owner can have significant consequences for a company, affecting its stability and future viability. Shareholder Protection helps ensure the continuity of the business in such circumstances. It provides the remaining shareholders with the financial means to purchase the deceased’s or critically ill partner’s share of the business.

Most businesses will have shareholder agreements that cover key issues such as business strategy and management decisions. However, without adequate shareholder protection in place, the remaining shareholders may struggle to raise the necessary funds to protect the business’s ownership structure.

Shareholder protection can provide a lump sum to help facilitate the purchase of the deceased or ill shareholder’s stake, ensuring that the business can continue smoothly.

Businesses often take out loans for various purposes, whether to start the business, fund expansion, or provide short-term financial support. The ability to repay these loans usually depends on key individuals such as owners or directors.

In the event that a key person passes away or becomes critically ill, it can impact the business’s ability to meet its financial obligations. Business Loan Protection ensures that the business receives a payout to cover outstanding loan repayments, allowing the business to work with lenders to restructure or repay the loan.

This protection typically comes in the form of life insurance or life insurance with critical illness coverage, taken out on the lives of key individuals. The policy should provide coverage equivalent to the outstanding loan amounts, ensuring the business is financially supported in times of crisis.

Executive Income Protection provides valuable support to small business owners by safeguarding against the financial impact of an employee becoming ill or injured and unable to work.

This plan is designed to pay a monthly benefit to the business in the event of a valid claim. The payout can be used to cover the employee’s ongoing sick pay, helping them maintain their financial commitments without having to rely solely on savings or state benefits.

The cover can include the employee’s salary, dividends, and P11D benefits. For an additional cost, you can also arrange extra cover to include employer pension contributions and National Insurance (NI) contributions.