When advising on business protection, an adviser can be looking at a number of different situations – covering individuals within a business, covering the business itself, and covering commercial lending. Many mortgage brokers are business owners themselves, so there’s also the consideration of their own company’s needs.
Protecting the individual
When looking to protect individuals within a business there are various ways this can be done, through individual cover or a company scheme.
People within a business can be insured through individually underwritten policies, such as relevant life cover, through which tax relief is available, or individual critical illness and income protection policies. Key person policies where the business is the policyholder is also an option.
Group protection schemes are viable for small companies as well as large ones, with some insurers covering businesses of just two people. A key advantage is guaranteeing everyone gets cover up to the underwriting limits (typically £500,000 to £600,000) with underwriting required for higher sums assured only.
Premiums are annually renewable so they can increase with the age of those covered, but tax relief is available. If exceeding the lifetime allowance is a concern, Excepted Schemes can be used to keep benefits outside of these calculations, or by using relevant life cover under group rates.
Protecting the business
Small businesses are extremely vulnerable to losing someone through death or illness. Figures from Legal & General show 40% of SMEs would cease trading in under a year after the loss of a key person.
Protection policies can provide financial compensation to businesses for losing a key person, providing breathing space to decide how to continue, or covering the time taken to recruit.
Shareholder protection is another essential consideration for small businesses. It means if one of the shareholders is unable to work or passes away, the company can purchase their shares and continue trading, as opposed to ownership transferring to the family which could cause management issues for the business.
Protecting commercial lending
Taking out protection alongside a commercial mortgage is generally compulsory before a lender will release funds. Usually cover is put in place to protect the business owner for life and critical illness, so the mortgage would be paid. But the biggest risk here is covering the wrong person. The business owner might not be the person most critical to maintaining profits or generating income, so it’s essential to establish this in the fact finding process.
With small businesses being a fast growing part of the UK workforce, advising on a company’s overall protection needs, rather than purely what’s aligned to a mortgage, is a clear growth opportunity for advisers.