Life Insurance & Income Protection for Business (Key Man)

Life Insurance & Income Protection for Businesses (Key Man/Person Insurance)

Life Insurance for Business Protection
Life Insurance for Partnerships
Life Insurance for Shareholders
Sickness of an Employee
Sickness of a Business Partner
Self Employed Sickness Cover

Life Insurance for Business Protection

There are numerous unwanted situations that could arise from the loss of an important or key member of staff through death or long term sickness.

Business protection in the form of life insurance or sickness cover can be used to help deal with problems that may arise.

If a key member of staff were to die, it could cause serious problems if that person was involved in a major project, knowledgeable about fundamental business practices or the main point of contact for an important client.

The amount of cover required will vary from one company to the next and depend on the impact the likely loss would have on the company.

The time it will take for a company to recover as well as the cost involved in finding and training a replacement.

Once a figure has been established a life insurance policy can be taken out on the employee.

Life Insurance for Partnerships

If a partner dies, the spouse or family of the deceased may wish to withdraw the value of the persons share in the business. This can cause problems because much of the value of the deceased share could be tied up in assets such as important machinery or computers. To overcome this problem, partners need to consider life insurance policies against each other.

There are three ways to protect against this:

Automatic Accrual – an agreement between partners divides the deceased’s share between the remaining partners and the family of the deceased are compensated from the proceeds of a life insurance policy (written in trust for tax purposes).

Buy and Sell – this method simply means the legal representatives of the deceased are obliged to sell the share to the remaining partners who are in turn obliged to buy it. The remaining partners are able to buy the share from the proceeds of a life insurance policy taken out by the deceased on their own life and placed in trust for the remaining partners.
Cross Option – similar to Buy and Sell except the deceased’s estate is obliged to sell the share and the partners have the option of buying it.

Death of a Shareholder

If a shareholder of a small firm dies the firm is likely to want to be able to buy the shares back. By taking out a life insurance policy on the life of the shareholder for a comparable value of the shares the company will at least have the ability to buy the shares given the option.

Sickness of an Employee

If a key member of staff is prevented from working due to sickness a company can suffer serious consequences.

Policies are available which can provide a regular monthly income to a business if a ‘key person’ is unable to work. These are basically income protection policies taken out by a company on an employee with the benefit being paid to the company.

If a company is also paying sickness benefits to a member of staff, additional income will help pay for a temporary replacement and reduce the affect of the dual costs incurred.

Sickness of a Business Partner

In much the same way as protecting against the loss of an employee due to sickness a partner is likely to be a financial drain on a partnership if they are unable to work due to sickness.

Key Person cover can be used to provide an income to the partnership.

Self Employed Sickness Cover

Even though self employed people often employ other people they are likely to do all of the important work themselves. If this is the case their income will stop very quickly if they are unable to work due to sickness or serious accident.

Income protection for self employed people in the form of Permanent Health Insurance (PHI) can provide cover in the event of long term sickness.

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We have access to advisers who can compare a wide range of leading life insurance providers including some of the best known life insurance companies in the UK such as Aviva, Prudential, Bright Grey, Royal Liver, Scottish Equitable, Scottish Provident, Axa, Liverpool Victoria and more.

There are a number of ways insurance can be set up depending on the precise needs of the person wanting the cover so it makes sense to talk it through with an expert.

'Level Term' Life Insurance - Provides a fixed amount of cover for the entire term of the cover. For example, £100,000 of cover taken out at the start of the policy will always provide £100,000 of cover. People with an 'interest only' mortgage should consider this type of cover.

By having level cover with a repayment mortgage, although the mortgage will go down, the amount of cover would remain the same and so a surplus of cover would be built up over time.

'Decreasing Term' Life Insurance - Provides a decreasing amount of cover. This is usually cheaper than 'level' cover and the amount of cover goes down in line with a repayment mortgage so there is only enough to clear the mortgage. In some cases, such as a sharp increase in mortgage rates, there may not be sufficient cover to clear the mortgage entirely.

'Index Linked' Life Insurance - Provides cover which can increase or decrease in line with inflation.

'Family Income Benefit' - Provides an income to your next of kin for the remaining term of the cover. For example, if cover is taken out over a 25 year term and the policy holder dies in year 5, the 'Income' will be provided for the remaining 20 years. It is worth having this cover on an 'Index Linked' basis because an income of £15,000 may not buy as much in 10 years time as it will now.

Factors Affecting the Price of Life Insurance & Critical Illness Cover:

Age - the younger the applicant, the cheaper the life insurance. It is possible to have a life insurance policy that runs up to age 85 but most insurers have a maximum term of 40 years so if someone wants life insurance to the maximum age of 85, they will need to take out cover or renew their cover at age 45. Alternatively Whole of Life cover will run for the whole of the life of the policy holder provided the monthly premiums are paid.

Occupation - can make a difference to the cost of life insurance. Certain pilots and deep sea divers may be charged more for cover because of the increased risk involved on their day to day activities. Certain occupations within the building trade such as scaffolders and roofers may also be considered higher risk compared to office workers and so be charged more for life cover .

Weight - people who are overweight may need to pay more for life cover because excess weight can increase the risk of health problems in later life.

Existing Medical Conditions - If you suffer from or have suffered from a serious illness the likelihood is life insurance will cost more or be 'loaded'. In this instance it is always worth talking to an in dependant insurance adviser because insurance companies treat illnesses differently and an adviser can help find the most competitive price.

Family Medical History - If direct relatives such as parents and brothers and sisters have suffered from serious illnesses and there is a chance the illnesses are hereditary then life insurance may cost more.