Business Protection — Key Person, Shareholder and Partnership Insurance

A life or critical illness policy owned by the business on the life of a key individual — a director, founder, or employee whose loss would materially affect the business. The pay-out goes to the business to cover lost revenue, replacement costs, or loan repayment. The business pays the premiums.

A cross-option or automatic accrual agreement supported by life policies on each shareholder. On the death or critical illness of a shareholder, the policy funds the remaining shareholders to buy the deceased’s share from their estate at an agreed valuation. This is a vital policy for any company with more than one shareholder.

The equivalent of shareholder protection for partnerships — a life policy that funds the remaining partners to purchase the deceased partner’s share of the partnership from their estate. Particularly important for professional partnerships — solicitors, accountants, dental practices, medical practices — where the partnership agreement determines the valuation of a departing partner’s share.

A tax-efficient life policy for company directors and employees, paid for by the business and written in trust for the individual’s dependants. The premiums are deductible as a business expense and are not treated as a benefit in kind for the employee — making it significantly more cost-effective than a personal life policy for company directors. An effective addition to any director’s remuneration package.

Where the business has taken on debt — a commercial mortgage, a director’s personal guarantee on a business loan, or a shareholder loan — business loan protection ensures the outstanding debt can be repaid if a key person dies or is incapacitated. The sum assured is aligned to the outstanding loan balance and can reduce over the loan term.

Where a pension scheme (SSAS or SIPP) has provided finance to the business — through a commercial property loan or a loanback arrangement — associated life cover can be structured within the pension to protect the loan if the key person dies before it is repaid.

Business protection insurance is a collective term for policies designed to protect a business against the financial consequences of a key person dying, becoming critically ill, or being permanently unable to work. Unlike personal life cover, which pays out to the individual or their family, business protection pays out to the business — to fund a share buyback, replace lost income, repay a loan, or cover recruitment costs.

Key person insurance is a life or critical illness policy owned by the business on the life of an individual whose loss would have a material financial impact — typically a founder, managing director, or senior revenue generator. The business pays the premiums and receives the payout. The proceeds can be used to cover lost revenue during the replacement period, repay business debt, or fund the cost of recruiting and training a successor. Where structured correctly, key person premiums may qualify for corporation tax deduction.

Shareholder protection is a arrangement where each shareholder takes out a life policy on the others, supported by a legal agreement (typically a cross-option agreement) that allows the surviving shareholders to buy the deceased shareholder’s share from their estate. Without it, a deceased shareholder’s equity may pass to their family — who may have no interest in the business, no experience in running it, and no obligation to sell at a fair price. For any business with two or more shareholders, this is an essential component of business continuity planning.

Relevant life cover is a term assurance policy taken out by an employer on the life of an employee, written in trust for the employee’s dependants. The premiums are paid by the company and are deductible as a business expense. For company directors, relevant life cover is typically more cost-effective than a personal policy. We arrange relevant life policies for directors alongside their business protection.

The sum assured for key person insurance is typically calculated in one of two ways: as a multiple of the key person’s contribution to revenue or profit (commonly 3–5 times annual profit at risk), or as the outstanding balance of a loan or financial obligation the key person is connected to. For shareholder protection, the sum assured should reflect the current valuation of the shareholder’s equity in the business, reviewed regularly as the business grows. We will help you calculate the right sum assured for each policy based on your specific business structure and financial position.