What is business life insurance?
All businesses, both small and large, hope to run smoothly and successfully. Of course they do – no one starts a business expecting something to go seriously wrong, but sometimes life has other ideas whether we like it or not.
When thinking about assets you may need to insure in relation to your company, you may initially think of expensive equipment, office spaces, vehicles etc. Even though these things are most likely important to the running of your business, there may be one thing more important – the people.
It is a great team that makes a great business. We should know, we are very proud of ours.
Most companies, especially small businesses, rely heavily on one person or a small group of people to lead them and keep them running. But what happens if they fall ill, get injured, or if the worst were to happen and they pass away?
No matter the reason, a company losing its director can have significant implications for the business and causes a knock-on effect for the employees, their financial security and, ultimately, their families and personal lives. It’s the responsibility of a company director to make sure that the business is looked after.
That’s where business life insurance (commonly known as key person insurance) comes in.
Should the unexpected happen, this type of policy would protect your business by providing a lump sum payment. The purpose of this payment is to help the company through the inevitable restructure and the problems that this may present.
By ensuring your company’s financial stability in the event of such a tragedy, in turn you’re protecting the livelihoods of your employees and those with whom you share professional relationships.
Can I pay life insurance through my business?
Yes – most kinds of life cover can be paid for through your business, including policies like key person insurance. In fact, this type of life cover policy is owned by your business and as such will always be paid through the company.
We have helped many business owners and directors in the UK that have chosen to insure their lives and/or the lives of their employees through their business. It is a smart decision as there are numerous benefits that you wouldn’t receive from a standard single life cover policy.
Of course, there are several different types of business life insurance, which we will run you through in more detail further down this page. Each of these policies will have their own individual pros and cons so it is definitely worth sitting down, either alone or with your business partners, to work out what cover you need, and which option is best for you.
If you need further advice on this, we are experts in business life insurance and brilliantly equipped to be able to break everything down for you, making the process of securing business life insurance simple and straightforward.
You work hard, let us do the hard work on this one – leaving you time to focus on keeping your business running as successfully as possible. We are able to make sure your business and family always have great protection in place, should they need it.
Can you claim life insurance as a deductible business expense?
Yes – as life insurance can play a pivotal role in protecting a business and, to some extent, ensures its success, it is considered to be an acceptable business expense. As such, business life insurance is tax-deductible.
As mentioned above, a business life cover policy like key person insurance is owned and paid for by the business. This is a much more efficient way of insuring a person’s life as it has added benefits you would not be entitled to compared to a standard life insurance policy.
The tax benefits alone make these policies worth considering with relief from corporation tax, national insurance and income tax on your premium payments being a major plus side to these policies. This can lead to huge savings compared to other policies.
With relevant life insurance, there is also no ‘benefit in kind’ element to the policy meaning the policy holder does not need to declare any benefits they may receive on their personal tax return. Yet another bonus, and another excellent reason to consider taking out a business insurance policy as opposed to a personal one.
If the policy holder’s estate is less than a certain amount (£325,000) you may also be able to avoid paying inheritance tax (IHT) which can often take up to 40% of a person’s estate. If your estate is over this amount, you do still have the option of writing a trust into your policy.
If you do this, the money from a life insurance pay out does not form a part of your estate and so you cannot be charged inheritance tax on it.
There are occasionally other tax considerations, such as the possibility of being charged taxes such as capital gains tax on an insurance pay out if your business is the recipient. For further advice on this subject, it is best to speak to your account or tax adviser. Even if this is the case, the overall benefits should still outweigh the potential for anything like this.
Tax-efficiency is a benefit to any business, big or small. As someone who runs a business, you know how important it is to keep costs down where possible – without having to compromise on quality. Any money you save can be filtered right back into your company, allowing you to invest in its future success.
Can I use life insurance as a way to ensure business loan protection?
Often, if you take out a loan related to your business, the bank will require you to take out key person cover to protect their return on interest. This is understandable but luckily the policy is as beneficial to you as it is to them – so it is a win/win situation.
If a person who is key to the running of your company were to become ill or pass away, without insurance in place to fall back on your company could fall into dire straights financially. Key person insurance guarantees you should still have funds in place to cover any outstanding loan repayments.
This means you won’t have to worry about banks chasing for you for payments, on top of everything else you would have to deal with following the loss of someone vital to your company.
Types of life insurance for business owners
There is a common misconception that business insurance is one set type of policy that you can use to cover your company’s best interests. There are actually several types of life insurance that business owners may look into taking out.
This is great news for you as it gives you options. This helps you to ensure you are taking out the cover that is the most suitable for the needs of yourself and your business. The main types of business insurance are:
- Key person or ‘key man’ insurance
- Relevant life insurance
- Shareholder protection insurance
There are benefits and disadvantages to each of these types of policy which we will outline for you below.
What is key person or ‘key man’ insurance?
Key person insurance can also be known as ‘key man’ insurance. These policies are intended to protect a business in the event of the loss of a person who is key to the running of the business, whether that loss is due to critical illness or injury, or in the worst case from this person passing away.
This allows a business to protect themselves from any financial difficulty that might occur because of this eventuality. It allows you to assure any investors in your business that you should still be viable and financially stable, even in the event of the loss of someone vital to the business.
You can use the insurance pay out to enable the day to day running of your business to continue, while you search for the key persons replacement. You can even use part of the pay out to invest in training for the person taking over their role, to ensure a smooth transition.
You can apply for key person insurance for anyone you believe is critical to the day to day running of your business. This leaves deciding who in your business qualifies for this cover up to your own interpretation. The most common roles people take out key person insurance for are:
| Business owner | HR directors | CEO/CFO |
| Sales leads | Upper management (e.g. operations manager) | Highly skilled employees that would be difficult to replace |
Typically, with key person insurance your premiums will be tax deductible as they can be classed as a reasonable business expense – provided the person insured is not a shareholder in the business or being covered to protect a loan. This can lead to great monthly savings.
Key person insurance is a guaranteed way to make sure that in the event of any disruption to your business due to the loss of the person insured, you can still afford to keep the business running smoothly.
This is a huge reassurance to both investors and your employees that their position with the company is secure.
What is relevant life insurance?
Relevant life insurance is a great way of protecting a smaller business. Designed as an alternative to group life insurance, relevant life cover allows smaller businesses to offer a ‘death in service’ benefit to its owners, directors or employees.
Relevant life insurance is also great for tax efficiency. With this type of policy, you can get income tax, national insurance and corporation tax relief on your premiums. This could lead to up to 49% savings for your company, which we’re sure is an idea you won’t be opposed to! And even better this is all HMRC approved.
There is also no ‘benefit in kind’ element to this type of policy meaning you don’t need to disclose this on your personal tax return as the premiums are paid by the business.
Yet another advantage is that a relevant life policy can be portable – meaning you can choose to take the policy with you if you leave the business. This gives you a lot more added flexibility compared to other insurance policies.
You would either take over the responsibility of paying for the policy yourself, or if you can check if the new company is willing to take over the policy for you. Just be aware that if they do, this has to be within 90 days of leaving the previous business.
Relevant life cover is often used to protect the lives of the businesses’ highest paid employees, such as company directors, HR managers etc. A company is able to take out multiple policies allowing the option of protection across all high-level staff members.
We are sure your employees would be grateful knowing you have their well-being and peace of mind as a top priority for your business, if you choose to take out policies on their behalf.
And of course, it is always a good idea to protect your own life. Life insurance is the #1 way to safeguard your loved ones against any financial difficulties, in the event of your passing.
For more information on relevant life insurance, check out our dedicated page on the subject HERE.
What is shareholder protection insurance?
Shareholder protection insurance is intended to minimise any disruption to the business if one of the owners passes away. Their share of the company would usually by default pass to their beneficiaries, meaning they would gain control of that share – and in turn mean they have a say in the running of your business.
This may be something you wish to avoid as it could have a significant impact on your business moving forward.
As a partner, you could want to buy these shares but not have enough spare funds in the business to cover this expense. The lump sum paid out from shareholder protection insurance should give you enough additional financial resources to be able to buy and keep control of these shares.
If one of the owners of your business passes away or is diagnosed as terminally ill (less than 12 months left to live), you can put in a claim. The protection provided buy this policy could be a massive reassurance to the other business partners.
It also allows for greater clarity for the beneficiaries of the affected shareholder. Knowing the amount of cover, they will be able to have a clearer understanding of what sort of payment they can expect to receive if they sell the shares they have inherited back to the company.
This ensures all around stability for yourself and your employees at a difficult time and allows the business to continue running as normally as possible in this circumstance.
This is one of two main reasons this type of policy will be taken out, with the other being that an outside investor in the business has requested this cover to be put in place to protect their interests.
Overall, shareholder protection is a great way to make sure your business is protected. It allows you to maintain control of your assets, so you do not have to worry about that an already difficult time.
Key person insurance vs relevant life cover
Key person insurance and relevant life insurance have definite similarities and cross over, both in the content of what they protect against and who they are intended for. This can cause some confusion as to which policy is the better choice for your company.
Some people may even get the policy types confused and think relevant life is key person and vice versa. Or people may think they are the same exact policies.
You don’t want to have to fight through a sea of conflicting information in order to decide on the right policy. We can make it simple and easy for you to work out the best option for your business.
We’re also never going to mislead you. We know that without a doubt, all business life insurance policies are beneficial and an excellent thing to have in place for both business stability and the protection of your family’s best interests.
But we also know that there are downsides depending on the policy. We believe it is still worth putting a policy in place, as the positives will usually greatly outweigh any negatives. Though of course of what policy if any is up to you.
We will lay out all the facts clearly so you can decide which policy makes the most sense for your needs.
Below we’ve put together a brief overview of the pros and cons of each policy type, to give you the information you need to make a fully informed choice.
Key person pros and cons
Below we have listed all the pros and cons of key person life insurance:
| PRO | CON |
| Assures investors of financial stability if there was the loss of a person key to the day to day running of the business | Although you have tax relief on premiums, you will be taxed on the pay out from any key person claim |
| Open to interpretation: you can decide who is a person key to your own business. There is no set list of people who can benefit. | You cannot take out whole life cover on a key person policy |
| Usually, premiums will be exempt from corporation tax/National Insurance/income tax | You cannot have the premiums be tax free if key person is being used to cover a business loan due to the insurance only being intended to cover lost profits |
| Minimises any disruption to your business if you lost someone key to its day to day running | As with any life cover policy, your premiums will vary depending on the age and general health of the person being covered |
| You can use the money from a claim to keep the company running whilst in the process of replacing the person lost or for training for their replacement | If the key person decides to leave the business of their own choice, it may feel like a wasted expense |
Relevant life pros and cons
Below we have listed all the pros and cons of relevant life cover:
| PRO | CON |
| No ‘benefit in kind’ meaning you don’t have to declare benefits from the policy on your personal tax return | If you are an employee and not the business owner you are not in charge of the policy, so you have less control over your cover |
| Owned and paid for by the business | You cannot add critical illness cover to a relevant life insurance policy. HMRC does not allow this. |
| Corporation tax, national insurance and income tax relief on the premiums you pay | It is mandatory to have a relevant life policy written into trust. Even though a trust is something beneficial, you don’t have the option of refusing to have one. |
| Extremely simple compared to some group life insurance schemes | Relevant life cover isn’t available to everyone, generally it is used for people such as company directors, contractors etc. |
| The policy is portable, meaning you can take your cover with you if you were to leave the business | A claim will not be paid if the person covered dies as a result of suicide within a set period of starting the policy (usually 12-24 months) |
Key person vs relevant life
Here we have a side-by-side comparison of the benefits of key person insurance vs relevant life insurance:
| Key person insurance | Relevant life insurance | |
| Provides family protection | NO | YES |
| Tax deductible premiums | YES | YES |
| Portable cover (can be converted to a single life plan on leaving the business) | NO | YES |
| Medical underwriting | YES | YES |
| Option for critical illness cover | YES | NO |
| Paid personally or by the company | COMPANY | COMPANY |
| Tax free premiums | YES | YES |
Small business life insurance: I own a smaller business, am I still able to take out business life insurance?
Of course you are! Business life insurance isn’t reserved solely for massive corporations. In fact, certain policies such as relevant life insurance are specifically designed with smaller businesses in mind.
Relevant life insurance was invented as an alternative to group life insurance schemes for businesses with fewer employees – meaning you can keep up with big businesses by offering your staff a ‘death in service’ benefit.
This allows your staff to rest easily knowing they have protection in place to care for their families if they were no longer able to do this themselves.
Smaller businesses have the same overall concerns as larger businesses. You want your business partners, your employees and any potential investors to know their best interests are your top priority.
With business life insurance, you can guarantee them that this is the case. Even though you may not have a huge office or hundreds of staff members, you are still entitled to the same great cover for yourself and your employees as any other business.
What are the benefits of business life insurance?
If you hadn’t figured it out by now, we could go on all day about the benefits of business life insurance. There are truly so many great reasons to take out business life cover for either yourself or your employees.
We have mentioned a lot of them already though of course individual benefits will depend on the specific policy you choose to take out. Here we have put them in a handy list so you can see just how many there are:
- No benefit in kind – no need to declare on personal income tax return
- MASSIVE tax savings on premiums (dependent on each policy)
- Owned by the business
- Allows for stability in the business in the event you lose a key person
- Relevant life = portable, flexible cover you can take with you if you leave the business
- Simple and straightforward to arrange
- Protects against financial trouble in difficult circumstances
- Shareholder protection = allows you additional funds to buy back shares of the company from the policy holder’s beneficiaries
- Key person = can use the pay out while looking for a replacement or to fund the replacement’s training for their new role
How to find the best business life insurance in the UK
We are experts in finding great life insurance cover for businesses in the UK. Whether you are a massive, private limited company, Limited Liability Partnership (LLP) or a small family run business, the process for accessing excellent cover at even better prices is exactly the same.
When taking out any life insurance policy there are several factors to consider:
- Length of policy: How long you would like the term of your policy to be.
- Type of policy: We have outlined above the various types of business life insurance plus all of their pros and cons. You now need to decide which policy type is right for you.
- How extensive you want your policy to be: Consider how much you want to be covered and also that with some policies the cover offered will depend on the salary and medical history of the person being insured
- Providers: All providers will be able to offer slightly different policies. It is worth getting an idea of the policy you are after and then doing a comparison to look at prices across insurance companies, to determine which is the most cost effective for your business. If you are struggling with this, we have over 20 years worth of experience in life insurance and are more than happy to help compare prices for you.
Why should I take out business life insurance?
Any form of business life insurance is a great way to cover potential financial difficulties stemming from the loss of a person important to your business, which we’re sure is a concern of any business owner. You don’t want anything to impact on the success of the business you have worked so hard to build.
As evidenced above, it can also be a great and tax-efficient way for you to insure your own life through your business – helping you to rest easily knowing your family will have financial support in place if you were to pass away.
With this in mind, it doesn’t make sense not to at least consider putting this type of policy into place. It protects your business, and protects yourself – what’s not to like?
You can choose any of the several options for business insurance we have talked about on this page. There are pros and cons to each policy, but we are sure there will be a policy and provider out there that has exactly what you’re after.
Having some form of cover in place is vital. It truly can be the difference between your loved ones and your business struggling or getting by – at an already difficult time.
If you are considering taking out business life insurance, get in touch with one of our expert advisers today, we’re passionate about helping businesses find the perfect policy.
Having an insurance policy in place sets you up for financial security and the knowledge your business’s future is secured. You can use the FREE quote tool on our website or give us a call on 0800 009 6559.
Resources
Below we have linked some helpful resources related to the various policies referenced on this page:
Aviva – Business Life Insurance Options: A guide to the tax advantages
