Types of protection in business

What would you like to happen?


What would currently happen?

These are two key questions to ask yourself when considering protection in the event of your death, sickness, or illness. If your answers vary, this suggests that it is time to address any shortfall you may have in your level of cover.

As a self-employed individual, the lack of sickness, illness, or death in service benefits can leave you more vulnerable than employed individuals.

For this reason, there are a number of solutions available to help those in this position.

Relevant Life Cover

A Relevant Life Insurance Plan is a life assurance policy that can include critical illness cover that provides benefits for the employees of the business. The plan itself is taken out and paid for by the company on behalf of its employees or directors. The proceeds will be then be paid into a discretionary trust for the benefit of the employee or director’s dependents or family.

This plan is designed to pay out a multiple of your salary or income in the event of your death or upon diagnosis of a critical illness. This option can be used where there isn’t a sufficient number of employees or directors to justify a group death in service scheme. It covers the employee or director for a set period of time, on a level increasing or decreasing basis.

This is classed as a business expense, therefore will reduce any profits for corporation tax purposes.

Income protection

This option is usually paid by the individual themselves and provides a proportion of their income if they are unable to work due to illness or injury. This can be paid for over a specified period of time or up until retirement.

Income protection will usually be paid by the individual as a personal expense, as any proceeds in the event of a claim would not be subject to tax. If paid through the business, then this may be classed as a benefit in kind – meaning the proceeds from the policy could potentially be subject to tax.

Shareholder protection

The loss or incapacity of a shareholder can disrupt a company, but by having shareholder protection in place, the interruption to your business will be minimised.

You may not have considered, or indeed planned, what you would wish to happen to your shareholding in your business on your death or critical illness.

In the instance that you or one of the other shareholders of your company dies, or suffers a critical illness, if you don’t have a Business Will, you run the risk of financial implications. As a result, your family or dependents may not receive their legacy and there may be difficulties in the future trading of the business.

In the event of death or incapacity of a business owner, shareholder protection allows the remaining partners, shareholding directors, or members to remain in control of the business, whilst ensuring your family is appropriately compensated. This can be facilitated through Life Assurance, a Double Option Agreement, a Business Trust, or Critical Illness Cover.

If you’re interested in finding out more about the information discussed in this article, get in touch with our Financial Adviser, Greg Davie, on gdavie@gilsongrayfinancial.co.uk or on 07862 258 405.

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