What protection do business owners and the self-employed need?

The short answer: most business owners need two layers of protection. Personal cover protects your own income and family. Business cover protects the company if you or a key colleague can no longer work. The right mix depends on your income, your borrowing, your family and how the business is owned.

Employees often have sick pay and death in service benefits. Business owners and the self-employed usually have neither unless they arrange it. Here is how we help clients think it through.

What personal protection should a business owner consider?

• Income protection pays a monthly income if you cannot work because of illness or injury. For the self-employed it is often the most important cover of all. We look at this in more depth in does income protection pay out for the self-employed?
• Life insurance pays a lump sum or income to your family if you die, and can be set up to clear a mortgage.
• Critical illness cover pays a lump sum on diagnosis of a specified serious illness, giving time and money to recover.
• Family income benefit pays a regular income to your family for the rest of the policy term, often a cost effective way to cover young children.

What is relevant life cover?

Relevant life cover is a life policy paid for by your limited company for the benefit of your family. It works like a death in service benefit. Premiums are usually treated as a business expense, and the policy is not normally treated as a benefit in kind. For company directors it can be a more tax efficient way to arrange personal life cover. Your accountant should confirm how it applies to you.

What business protection is available?

• Key person cover pays the business if someone whose skills or relationships drive profit dies or becomes seriously ill. It helps cover lost profit, recruitment and reassurance for lenders.
• Shareholder or partnership protection provides funds for the remaining owners to buy the shares of an owner who dies or becomes critically ill. Their family receives a fair value and control stays with the people running the business.
• Business loan protection repays company borrowing, such as loans guaranteed personally by directors, if a key person dies or becomes ill.

How much cover do I need?

Start with what would need to be paid, and for how long. For personal cover, consider your mortgage, other debts, family living costs and children’s ages. For business cover, consider lost profit, the value of each owner’s shares and any personal guarantees. We work through the numbers with you rather than quoting a round figure.

Should policies be written in trust?

Usually, yes. Writing personal life cover in trust can mean the payout reaches the right people faster and may sit outside your estate for inheritance tax. Business policies often need specific trust and agreement documents, particularly for shareholder protection. We arrange the trusts alongside the policies.

How we help

We review personal and business cover together, so nothing is duplicated and nothing is missed. That includes checking existing policies and how they fit with your borrowing. See our business protection, relevant life and income protection pages, or speak to us for a review.

Frequently asked questions

This article is general information, not advice. Protection policies have no cash value and you will receive nothing if you stop paying premiums or do not make a valid claim. Trusts and tax treatment depend on individual circumstances and may change. Business protection and trust advice are not regulated by the Financial Conduct Authority.