Business life insurance

As a business owner, your company is like your baby. You’ve spent years putting in the work to watch it grow, so it makes sense to protect it. 

Just as life insurance can protect your family, it can also protect your business.

Business life insurance isn’t available through Confused.com, but this guide aims to inform you about the different types and whether it’s right for your business.  

 

What is business life insurance?

Business life insurance helps to provide financial support when it’s needed the most.

When discussing business life insurance, it can be split into 2 categories:

Life insurance for business owners

Policies for business owners can help to minimise the financial impact of the business owner/director dying.

The pay out can help to:

• Cover commercial mortgage/rental payments
• Pay for bills
• Repay business debts/loans
• Replace lost profits

Business life insurance for employees

Business life insurance can also benefit employees, by offering them death in service.

This means a lump sum will be paid to the employee's loved ones if they die while in employment.

Loved ones can use the pay out to help cover:

• Rent/mortgage
• Household bills
• Additional childcare
• Funeral costs

What business life insurance policies are there?

The main types of business life insurance are:

Relevant life insurance

Business owners can buy the relevant life insurance to provide death in service to their employees.

Death in service benefit will pay out a lump sum to the employee’s family if they die during the policy term and while they’re employed.

As the premiums are paid by the business, they could be claimed as a business expense (making this a tax efficient option).

Relevant life insurance could be beneficial for small to medium size businesses who want to offer financial protection to employees but don’t have the budget for larger group life insurance schemes.

Key person life insurance

Also known as 'keyman insurance', protects a business from the financial impact of losing a key employee.

It will pay out a lump sum if the insured employee dies or is diagnosed with a critical illness.

The key person could be any employee whose skills are important to the company’s success, or the business owner could choose to cover themself.

The lump sum payment could be used to cover any lost profit, pay off debts/loans or cover recruitment/training costs for a new employee.

Group life insurance

It allows employers to provide their employees with death in service.

This is a benefit that will be part of an employee’s benefits package and will pay out to their loved ones if they pass away while in employment.

The employer can choose a fixed amount to pay out or it can be a multiple of the employee’s salary.

Shareholder protection

Shareholder protection provides funds to purchase the shares of a shareholder who has died or is critically ill.

The pay out from the policy can be used by the surviving shareholders to buy out the shareholder who has died/is critically ill.

This helps them maintain control so the other shareholders don’t have to find a new and potentially unwanted shareholder.

Business loan protection insurance

This policy type ensures that a business can repay outstanding debts if a key person (such as the business owner/director) dies or is diagnosed with a critical illness.

A lump sum payment will be made to help cover the debt. This policy can help to cover debts such as business loans, commercial mortgages or overdrafts.

Is life insurance a business expense?

As business life insurance policies are paid for by a business, the premiums could be classed as a business expense, making them tax-deductible.

HMRC’s requirements for premiums to be tax-deductible are:

• The policy can only be used to cover potential loss of trading income
• The policy term should not exceed the period of the employee’s usefulness to the company
• The person covered must be an employee of the company that benefits from the policy
• It must be a term life insurance policy with no investment element

Typically, personal life insurance policies aren’t tax deductible and won’t be classed as a business expense.

Do you need business life insurance?

It’s not a legal requirement to buy life insurance if you have a business, but it could provide much needed financial support during unexpected hard times.

In particular, you might consider business life insurance if:

• You’re paying rent/mortgage for a business premises or you have loans that your business may struggle to pay if you died.
• You have a key employee and your business would face financial difficulty if they died.
• You want to offer financial protection to employees.

If you’re thinking about taking out business life insurance, it can be beneficial to speak with a financial advisor to make sure you’re getting the right option for your business.

Can personal life insurance protect your business?

Yes, you could choose to protect your business with a personal life insurance policy.

2 business partners could buy a joint life insurance policy. If a partner dies during the policy term, the surviving partner will receive a lump sum pay out.

The premiums for personal life insurance would need to be paid from a personal account, so they wouldn’t be classed as a business expense.

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