Time to Review?
33% of businesses have never renewed their business protection. Isn't it about time?
Legal General Business Protection Gap
It comes in many forms; its aim is to pay out an agreed amount to your loved ones in the event of your death.
Business Protection
Relevant Life cover
Relevant Life insuranceis a level term insurance plan available to employers to provide an individual death in service benefit for an employee. It is designed to pay a lump sum if the employee dies whilst employed during the length of the policy.
This allows smaller companies to set up individual death in service benefits for their key members of staff without having to take out a group life plan. It can also be used to top up a key individual(s) group life plan. The Relevant Life Insurance Plan is a great way to reward and retain or attract high-calibre staff. If you own your own limited company, you may not realise that this was a benefit available to you.
As of January 2015 you can now set up your critical illness policy as a Relevant Life plan.
| Non-Relevant Life Plan | Relevant Life Plan | ||
|---|---|---|---|
| Annual Premium | £1000 | £1000 | |
| Employee Tax | National Insurance contribution (2%) | £34.48 | - |
| Income Tax (40%) | £689.65 | - | |
| Employee Tax | National Insurance contribution (13.8%) | £237.93 | - |
| Less Corporation Tax (20%) | -£392.41 | -£200 | |
| Total Cost | £1,569.65 | £800 | |
A saving of £769.95, which is a saving of almost 50%.
This table is for demonstration purposes only. All percentages are presumed figures.
Loan Protection
When a business borrows money from a bank or other financial institutions, it is common that the lender will want some form of protection cover to repay all, or some of that loan. Many people do not realise that if a Director dies, the lender may want the entire loan repaying straight away. Does your company have the ready cash to pay the last loan you took out? Many do not and would struggle to pay should something happen to the Director which would potentially put the company out of business. By taking out a loan protection plan, you can avoid this as it will provide a lump sum to cover the loan. Get quotes today
Example:
- James Edwards Cool Computers Ltd
- Borrows £750,000 with ABC Bank
- James Edwards takes out £750,000 loan protection
- James Edwards passes away
- Life insurance pays out
- ABC Bank loan is paid off
Share Holder Protection. Also Known as Partnership protection
Mr Jones and Mr Smith incorporate a business together. They do very well and after five years the company is now worth £500,000. Mr Smith suddenly dies. His shares now go to Mrs Smith and the children. They have no idea how to run the business or even the desire to do so.
In an ideal world, Mr Jones would buy the shares back for the company for £250,000. This gives him control of the business.
However, if the company is not cash rich this could lead to a problem. Mrs Smith might decide to sell the shares to Mr Andrews who runs a rival company. All she wants is the best deal for her family; she doesn’t care about the business anymore now that her husband has died.
Mrs Smith might decide she will attempt to run the company. Now do not get me wrong, Mr Jones likes Mrs Smith when they used to go out to dinner as a foursome, however he had never considered working with her.
The Share Holder Protection plan ensures there is a lump sum to cover the shares. This runs alongside a cross option agreement ensuring the shares go to the right people.
The Plan Ensures;
- The remaining partners keep control of the business and the shares
- The agreement ensure all transactions are tax efficient
- The family of the deceased member are properly compensated
- The company continues to run
The facts
In the UK, 87% of business owners expect their business to grow in the next 5 years. However, statistically only 33% of those businesses will review their protection needs. Your business changes all the time. You have to find time to find new customers, get new prices from suppliers and find new technology to make your job easier. It is time that reviewing your protection needs becomes just as important. It is vital to review the plan because if the worst happened, you would only be as protected as when you were last reviewed. No one wants to go backwards with their business, so make sure you have up to date adequate cover.
At Proadvice we offer a free review service to all our business protection clients ensuring the right people are covered for the required amounts. Ensuring as you grow, you stay protected.
