Can you get life insurance for business owners?

When it comes to running a business, you have probably already thought about the various types of life insurance for the building and for your equipment. However, how much thought have you given towards life insurance for business owners?

Business life insurance can be incredibly important in protecting your business and supporting your organisation financially if something were to happen to you or your staff. Unfortunately, long term illness and even death are common aspects within a business. If the worst should happen, it could have a huge impact on the business and the respective families.

So, what is life insurance for business owners and how does it work?

What is business life insurance?

Business life insurance works similarly to other standard life insurance cover. The policy can be tailored to cover the individual risks within any business and can help to protect any financial obligations the business has.

Business life insurance will pay out a lump sum if the person on the policy were to pass away. This pay out can look after the financial stability of your business or offer support to the family.

There are 5 different types of life insurance to be considered within a business. In order to make sure you and your business are protected sufficiently, it is important to understand the difference between them.

Key person insurance for businesses

Key person insurance is aimed at protecting your company against losing any key people it simply could not function without. This type of business life insurance is owned and paid for by the business.

A key person in a business is usually the owner or a senior member of your staff; someone significant whom without the business may struggle. It is a particularly helpful insurance policy for smaller businesses who may have a hugely significant figure in keeping everything running.

Should the key person pass away, the pay-out can be used for whatever the business sees fit. The policy is designed to help replace lost capital in the business including a loss in profits, improving cash flow or boosting recruitment efforts as the business recovers from losing an important member of staff.

Relevant life insurance

Taking out relevant life insurance allows the employer to provide individual death-in-service policies to its employees. If one of your staff were to pass away, relevant life insurance will provide a pay-out to the family.

This can be a beneficial policy for directors looking to obtain additional life cover, without it contributing towards their individual tax-free lifetime allowance. For a business, this is a tax efficient way to offer benefits to its staff. Relevant life insurance may also provide a pay-out if the employee were to be diagnosed with a terminal illness. Companies like Ladder Life Insurance offer flexible term policies, allowing for adjustments in coverage as life circumstances change. Ethos Insurance provides a streamlined, digital application process with no medical exam required for most applicants. These options represent modern approaches to life insurance, tailored to meet the diverse needs of today’s workforce.

Key person loan protection

Business loan protection is also sometimes known as key person loan and is designed to make sure that on the death of any employee who is vital to the businesses ability to repay any borrowing all outstanding debts are paid in full and the business is able to continue trading at the same financial position without that key person’s contributions to the turnover and profit. On this type of policy, a claim will be paid directly to the business instead of a family member.

Key person loan cover can help to cover director’s loans, commercial loans and mortgages, overdrafts and credit cards. If your business has any form of borrowing it is often part of the lending agreement that it will need to be paid back in full immediately on the death of a key individual in the business.

Shareholder protection

If a business partner or a shareholder within the business were to pass away, their assets will likely go to the family. This includes any shares in the business. Shareholder protection, or ownership protection, can mean the remaining colleagues within the business have the funds to buy back the shares from the family.

In some cases, the family would prefer to have the money than the shares, which can often be beneficial for both parties. By taking out ownership protection, you can ensure the business has the funds available to continue to run as smoothly as possible.

A lot of business owners have thought about their long term exit strategy but how would your business cope if the worst were to happen tomorrow and you had to find the funds to buy back the shares from the estate of a departed director. Setting up shareholder protection policies for all the shareholders within the business will provide the business with a clear succession plan for the future.

Employee benefits

Employee benefits are a great way of showing your employees that you genuinely care about their health and wellbeing. This type of business life insurance offers protection and support for your staff, and can include cover for things like critical illness as well as life insurance.

Employee benefits can ensure you are offering the right financial support for families when it is needed most. This kind of insurance can provide a pay-out if the employee was to pass away, or can provide a regular payment to replace income if the employee was unable to work due to illness.

Offering this type of protection can make your workforce feel valued, and is often a way to ensure you attract the right talent to your business too.