BUSINESS PROTECTION
Your business has people it cannot easily replace
A company can insure premises, equipment and vehicles, yet leave its most valuable people unprotected. Business protection can provide money and structure when death or serious illness affects an owner, director or key employee.
A people risk is a financial risk
When a key person dies or becomes seriously ill, the effect can reach revenue, lender confidence, customer relationships, recruitment, ownership and family security at the same time. Insurance cannot preserve every relationship or guarantee that the business continues. It can provide capital when the business needs options.
Business protection is not one product. Key person cover protects the company against a financial loss. Shareholder or partnership protection supports an ownership transfer. Business loan protection can provide money for debt. Relevant life cover and executive income protection are employer funded benefits for eligible individuals.
The purpose of the cover determines who should own the policy, pay the premium and receive the claim. Legal agreements and tax advice are often necessary, so the insurance should be arranged as part of a coordinated plan.
Why this matters
Legal and General's 2019 research of more than 700 small and medium sized businesses found that 26 per cent said they would close immediately after the loss of a key person, with another 26 per cent expecting to close within a year.
Royal London's business protection guidance separates key person, ownership and loan protection because each responds to a different business problem and requires a different structure.
Five risks to review
- Key person risk: lost profit, recruitment cost, disrupted relationships or delayed projects after the loss of a vital employee or owner.
- Ownership risk: shares passing to a family that wants cash while the remaining owners want control.
- Debt risk: a lender calling, reviewing or refusing to renew borrowing after a guarantor or key person dies.
- Employee benefit risk: a company wanting tax efficient life cover for an eligible director or employee, subject to current rules.
- Income risk: a director or key employee unable to work for a prolonged period while salary and employer costs continue.
The ERG Finance business protection review
- Map ownership, voting control, key people, debts, guarantees, recurring revenue and client concentration.
- Estimate the financial effect of death and serious illness, including profit loss, replacement time and working capital.
- Review existing policies, employee benefits, shareholder agreements, partnership agreements and lender conditions.
- Agree the policy purpose, owner, premium payer, beneficiary, sum assured and term.
- Coordinate with the accountant and solicitor on tax treatment, valuation and legal agreements.
- Set a review date because business value, debt and ownership can change quickly.
Choose the problem, then the cover
The business protection cards should each begin with a practical question. What happens to profit if this person is absent? Who buys the shares? Which debt becomes difficult? How is a director's family protected? What happens to salary during long term illness?
This approach keeps the page informative and prevents every route becoming a generic quote form.
A profitable company with one vulnerable point
Illustrative Scenario
A company has recurring clients, healthy accounts and three directors. One director holds the main client relationships and has personally guaranteed part of the borrowing. If that person died, the company could face falling revenue, lender questions and a shareholding transfer at the same time. A coordinated review separates key person loss, debt and ownership, rather than assuming one company policy will solve all three.
What readers need to consider
- The same person can create several risks, but one policy amount should not be counted against several competing needs.
- Tax treatment depends on policy purpose, ownership and current law. An accountant should confirm the treatment.
- Share and partnership protection normally needs a suitable legal agreement. Insurance alone does not create an obligation to buy or sell.
- Company valuations and debts change. Cover needs regular review after funding, acquisition, shareholder change or new borrowing.
- Insurer acceptance and financial evidence can take time, particularly for high sums or complex ownership.
Frequently Asked Questions
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It is a group of life, critical illness and income protection arrangements designed for defined business risks, including key people, ownership, debt and employee benefits.
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Usually not well. The intended recipient, amount, term and legal structure differ between key person, loan and ownership needs. Separate arrangements can be clearer.
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It depends on the purpose. The company may own key person or loan cover, while ownership protection can use personal or trust arrangements. Legal and tax advice may be needed.
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Sometimes, but no general promise should be made. Treatment depends on policy purpose, employee relationship, ownership and current tax rules. The accountant should confirm it.
You do not need to know which policy you need before speaking to us. Tell us what you are worried about protecting, and we will help you understand the options.
Review our business risksERG Finance provides protection advice from across the whole of the market.
This page provides general information, not personal advice. Business protection can involve legal agreements, valuation and tax. ERG Finance provides insurance advice. Legal, accounting and tax advice may also be required. Policy terms, underwriting and exclusions apply.