Business Insurance Protection

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What Is Business Insurance Protection?

Business protection insurance helps individuals and businesses cope financially when certain unexpected events occur.  When a person passes away, that can sometimes play a significant impact on a business, however when a person dies without being insured, sometimes that can compound the situation even more. These things are not in our control, however, business protection insurance helps us take some of that control back financially. There are business insurance policies that will payout in the event of death, a terminal illness, critical illness, and also in the event of being signed off work medically. 

How Weystone Can Help

At Weystone, we get to understand the current and future direction of your business as well as the key individuals within the business to help you identify which aspects of business protection insurance are the most beneficial to you.  There are three key areas that we help advise on in the business insurance sector, keyman insurance, shareholders protection and relevant life insurance.  Each business insurance policy has its own responsibility and helps the business continue to function should these events occur.

With Shareholders protection, you can purchase shares in order to maintain control of the business. The business insurance policy will be set up on a single life basis, and Weystone helps you to complete a shortfall calculator in order to establish the necessary amount of life cover.

We recommend that you make provisions within your business to buy out the shares of any partner or co-shareholder in the event of their untimely demise. 

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Assets of Business Protection

Cross-Option Agreements

The Cross-Option Agreement (sometimes called a double option agreement) gives a deceased’s business partners/co-shareholders the option to buy their share of the business from their estate within a specified time. The business protection insurance agreement similarly gives the deceased’s estate the option to sell its share to the surviving partners.

Each partner/co-shareholder writes a life policy on an ‘own life own benefit’ basis where they are the life assured and is also the proposer or ‘grantee’.) The business insurance policy is however affected under trust with the other partners or co-shareholders as trustees and beneficiaries.

On the death of the life assured, business protection insurance then provides the trustee/beneficiaries with funds that can be used to buy out the share of the business falling to the estate of the deceased.

Provided that the business insurance policies are written under trust from the outset there will be no liability to Income Tax or Capital Gains Tax on the death benefit. Moreover, as there is no binding contract for the sale of the deceased’s share of the partnership, the share of the deceased partner should attract business property relief for Inheritance Tax purposes.

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The Buy and Sell Agreement

The Buy And Sell Agreement, within business protection insurance, binds the estate of the deceased partner/shareholder to sell his share of the business and the surviving partners/shareholders to buy it.

When a partner/shareholder dies, his share of the business becomes a part of his estate and so is taken into account for Inheritance Tax purposes. As a binding contract for sale exists under the Buy And Sell Agreement, this prevents business property relief from being claimed by the estate. If the estate passed to a surviving spouse there would be no IHT liability anyway so this would not be an issue.

One of the most valuable assets of your business is its staff. Some of these people because of their specialised knowledge, skills or contacts, are vital to the profitability of the business and are referred to as “Key Man”. Their death or incapacity could result in the financial performance of the business being adversely affected, which could lead to a significant fall in profits, the inability to repay loans or meet other obligations and, in extreme cases, to the collapse of the business.

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BUSINESS INSURANCE PROTECTIONFrequently Asked Questions

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01
What is Business Protection?

Business protection insurance is an insurance contract that helps to protect a business from any financial effects that may occur from its key people being diagnosed with any critical illness, or in the event of their death. This type of business protection is available to partnerships, shareholders, sole traders as well as key employees.

02
Why Do I Need Business Protection?

Having business protection insurance is very beneficial. Should one of your key employees, shareholders or directors suffer from a critical illness or die, having business protection in place can help to minimise the impact this has on the company. 

03
What are the Different Types of Business Protection?

Below we have listed the most common types of business protection insurance that we can help with:

  • Keyman protection (also known as key person protection)
  • Shareholder protection (also known as Ownership protection)
  • Relevant life insurance
04
What is Keyman/Keyperson Protection?

This type of business protection insurance helps to protect businesses against the loss of profit if an employee were to become terminally ill, critically ill or die. It can help ensure that the business will continue to trade as well as help with hiring replacements.

05
What is Shareholder Protection?

This type of business protection insurance allows business owners to buy back shares from any partner who is diagnosed with a critical illness or in the event of their death. This means that the surviving owners can stay in control of the business and minimise any potential disruption that may occur.

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