Business Protection Assurance is a type of insurance that helps protect a business against possible financial losses when a terminal or critical illness or death affects the owners or their employees. By including this in your business plans, you can help your business to survive and continue trading under seriously challenging circumstances.

There are three main types of Business Protection Assurance:

  • Key person protection
  • Partner/Director/LLP Share Protection
  • Business Loan Protection

This article focuses on Share Protection and Loan Protection.

What is Partner/Director/LLP Share Protection?

Business protection assurance

The loss of a business owner may destabilise the business and can quickly lead to financial difficulties. This cover helps the remaining business owners to stay in control of the business.

If a business owner dies or becomes terminally or critically ill during the policy term, this cover provides funds to the remaining business owners to help purchase the deceased or critically ill business owner’s interest in the business.

Tax on premiums paid by the shareholder:

  • The premiums are paid out of taxed income and don’t benefit from tax relief.

Tax on premiums paid by the business:

  • The premiums are a deductible business expense.
  • Employer National Insurance is payable on behalf of the shareholder on the value of the premiums and the employee is liable to Income Tax on the value of the premiums.

Tax benefits:

  • There is no liability to Income Tax on any benefits paid under life or critical illness cover.
  • Life policies are usually exempt from Capital Gains Tax in the hands of
    the original owner.

Any benefit paid out won’t be part of the policyholder’s estate if placed into an appropriate business trust.

What is Business Loan Protection?

The loss of the person(s) who guaranteed a loan is particularly serious for a business. Business Loan Protection helps the business pay an outstanding overdraft, loan or commercial mortgage, should the guarantor die or become terminally or critically ill during the policy term.

Business Loan Protection is life assurance (sometimes life assurance and critical illness cover) written on the life of an individual or individuals. When a valid Business Loan Protection claim is made, a sum equal to the outstanding debt could be paid to either the business or directly to the lender.

The premiums are not deductible as a business expense because the policy is set up for a capital purpose, the repayment of a loan. Payments from the policy are not taxable as they are treated as a capital receipt.

Please contact Chris Slatter on cslatter@ellacottswealth.co.uk or 01295 250401 to discuss how these policies could help you, your business, and your family plan for challenging times that we hope won’t happen.