Business Protection

We can provide vital insurance for Premises, Offices, Machinery, Stock and Financial Protection, Vehicles, Public Liability Insurance, Buildings Insurance, Contents Insurance, Pensions, Company Cars, Trade Credit Insurance.  We can cover operational needs such as Employees, Staff Liability Insurance, IT Equipment, Office Furniture, Professional Indemnity Insurance and Environmental Liability Insurance.  We can also quote for the nice to haves like Staff Benefits, Private Medical Insurance, Income Protection and Group Life Schemes.

 

Private Limited companies

How long would it take you to find and train a replacement if a key person in your business died unexpectedly?  Would you lose the detailed knowledge or expertise needed to continue running the business?  Would you find difficulty meeting loan payments or find yourself having to repay a loan in full if you lost one or more of your key people?  Would you run into problems raising money for new ventures, expansion and so on without a key person?

 

 

Partnerships

How long would it take you to find and train a replacement if a key person in your business died unexpectedly?  Would you lose the detailed knowledge or expertise needed to continue running the business?  Would you find yourself having to repay a loan in full if you lost a key person?  Would you be in danger of losing contracts, goodwill or important contacts if you lost a key person?

 

 

Limited Liability partnerships (LLP)

How long would it take you to find and train a replacement if a key person in your business died unexpectedly?  Would you lose the detailed knowledge or expertise needed to continue running the business?  Would you find difficulty meeting loan payments or find yourself having to repay a loan in full if you lost one or more of your key people?  Would you be in danger of losing contracts, goodwill or important contacts if you lost a key person?

 

 

Sole Traders

How long would it take to find and train your replacement if you died unexpectedly or became critically ill?  What would happen to any outstanding loans taken out by the business?

 

 

Share Protection

Shareholder protection helps shareholders or partners keep control of their business if one of them dies or is diagnosed with a critical illness.

Are you able to find or re-allocate funds to buy the late shareholder’s interest or shareholding in the business?  Without taking out a loan?  What would you do if a stakeholder died and their interest passed to beneficiaries who don’t have the necessary skills, experience or interest in the business to make a worthwhile contribution to the business?  What would you do if a stakeholder’s beneficiaries want a quick cash payment instead of shares or a share of the business?  Would you need to find a third party to provide the cash to buy out the late stakeholder’s estate.

Being unprepared for situations like those above can lead to serious financial problems and even loss of management control.  Therefore, it is imperative to have money available to cover the value of shareholdings.

Share protection pays out a sum of money to the remaining stakeholders if one of them dies.  They can use that money to buy the late stakeholder’s share of the company and keep ownership of the business.

 

 

Business Loan protection

Business loan protection makes sure your business can repay a loan if the worst were to happen to the guarantor.

If you lost a key person through death or critical illness, would you be able to pay off any existing loans?

Would the families of directors or key people who have acted as fund guarantors be directly affected if the business were to default on loan payments for any reason?

When a company takes out a loan, it needs to be sure it can meet the repayments, no what happens to the business.

A lender will often make business loan protection a condition of the loan arrangement before releasing funs, and the directors may be asked to sign a personal guarantee for the loan.

A lender will usually consider life cover, critical illness or a combination of both for key people in the business, as adequate protection.  The cover does not have to be the same for each person, but it must be possible to assign the policies to the lender if that is a condition of the loan.  For each business, the total sum assured of all the individual policies must be equal to the full amount of the loan and be covered by a fixed term, decreasing  or level term assurance policy.  In the event that the key person covered by the plan die, the remaining partners can put proceeds of the policy towards repaying off the outstanding loan amounts.

 

 

Tax and Trusts

There are various tax issues that apply to business protection policies.

 

 

Tax Relief on premiums

For key person protection

Tax relief on premiums is allowed providing the following conditions are met:

  • The sole purpose of taking out the policy is to cover any potential loss of trading income(not capital loss or as security for a loan) from the loss of the key employee.
  • It is a short-term life insurance policy covering no more than the maximum potential length of the employee’s service if that person doesn’t own a significant share of the business.
  • There is an employee and employer relationship between the person covered by the policy and the company will benefit from the policy.

With an own-life policy, a sole trader may not qualify for tax relief on the premiums, as HMRC may see the policy as a personal benefit to you and your family,

If HMRC gives you tax relief on the premiums, it will normally tax any money from the policy as a trading receipt.  If HMRC does not give tax relief on the premiums, it will decide how to tax any money from the policy, but won’t generally tax it as a trading receipt.  It is worth pointing out that if premiums are tax deductible and you choose not to claim this, it would not stop the policy benefits being taxed as a trading receipt.

For share protection

 Each director or partner usually pays the premiums for policies they take out for share protection so they do not benefit from tax relief.

 

 

Inheritance Tax

For key person protection

Getting a sum of money from a key person protection policy can increase the value of a business and consequently the value of the shares held by an individual.  This may increase both the value of the estate and the inheritance tax liability of a shareholder or person owning the business.

You may be able to use business property relief to help reduce any inheritance tax that may be due.  Please consult the HMRC web site to find out more about this issue.

For share protection

Under a share protection or Partnership Protection policy, the money from a claim will not be part of the estate of the person who took out the policy if it is placed in trust.

Dicretionary inheritance tax rules will apply if you use a flexible Partner’s or Director’s Trust.  The gift of a policy into a trust is treated as a chargeable lifetime transfer.  However, as a trust is created at the start of the policy, it will have no initial value.  There won’t be a charge for inheritance tax at that time.

There is a potential charge to inheritance tax at each 10 -year anniversary of setting up the trust.  There will be a charge if the value of the trust property is greater than the available inheritance nil-rate band.  The policy will have little or no value if the key person covered by the policy is in good health and likely to survive the term of the policy.

The premiums paid to a trust policy would normally count as gifts for inheritance tax purposes.  However, HMRC may accept there is no gifting where there is a reciprocal commercial arrangement requiring all partners or directors to enter into a share protection agreement.

 

A business protection policy including optional critical illness* cover could ensure that a business can:

  • pay its debts
  • replace key employees
  • protect its profits
  • give partners the money to keep control of the company if a partner or directors dies
  • * pay off a loan or overdraft to alleviate financial pressure
  • * help keep business turnover going
  • * pay suppliers
  • *cover the cost of employing someone else in the interim until the key person returns to work
  • * provide support to an employee or their family to pay for the costs associated with medical care and recovery

Without business protection, the death or serious illness of a key person on a business can lead to the business being unable to trade which may affect people’s livelihoods.  As a business owner you may have thought about business protection but presently it is not a priority.  We aim to show you that the provision of business protection is not complicated and not as expensive as you might think.

WARNING

A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Free Range Financial Services Limited is an Appointed Representative of Quilter Financial Services Limited and Quilter Mortgage Planning Limited which are authorised and regulated by the Financial Conduct Authority.  Free Range Financial Services Limited: Registered in England & Wales, No. 07002930. Registered Address: Cartref, Trelogan, Hollywell, Flintshire, CH8 9BZ.