Often, the success of a business is dependent on one or two key people. However, it’s easy to overlook their importance and the impact it would have if something happened to them. Protecting your business, and the key people within it, should be a top priority.
Business Protection provides peace of mind. Knowing that the financial impact of the loss of a partner or co-director can be managed by the remaining shareholders.
Protecting your business with Cooper Associates Mortgages
One couple sought our guidance after being introduced by Cooper Associates Accountants (CAA). They wanted help protecting their business and securing their financial future while also optimising their tax situation.
We first explored the possibility of a key person policy. This would pay out in the event of death or serious illness of a critical member of the team. However, with savings already set aside for this circumstance by the owners of the business, this policy wasn’t appropriate. Therefore, with tax efficiency objectives also in mind, we suggested a Relevant Life Level Term policy.
The husband-and-wife team share their family business 50/50. The wife has another job in a part-time role. This job would trigger a death in service pay out should anything happen to her whilst at work.
No death in service cover is in place within the family business. This could be provided in the form of a relevant life policy if required in the future
Initially, the couple had only a small Decreasing Term Assurance (DTA) life insurance policy. This was in their personal names, based on their mortgage balance and term. Although it provided some protection, it wasn’t enough to truly safeguard them. It also lacked tax efficiency, something our clients wanted to improve.
After assessing their unique situation, we recommended a Relevant Life Level Term policy. This had a higher coverage amount than their current mortgage balance. This policy ensured that their debts would be cleared in the event of a death.
It would also provide additional funds to help their family through the grieving process, all while offering considerable tax advantages. As an example:
If choosing to pay for life insurance personally, a business owner in the higher rate tax band would need to be paid £172.41 gross salary to cover the cost of a £100 per month ordinary life insurance policy paid for by themselves. This is because their payment will need to cover taxation and national insurance contributions.
However, when the business protection cover is paid through the business, there is no personal tax rate to be considered. Also, because of a possible saving on Corporation Tax – as Relevant Life protection cover is a tax-deductible expense – the cost to the business for a £100 per month relevant life policy is potentially £81. This is an overall saving of 49%.
For the husband, Relevant Life cover means he wouldn’t need to draw as much from the company to keep it running. This would give him more breathing space to cope with his personal situation. For the wife, the cover would enable her to step away from her part-time role and steer the ship of the family business.
The couple now feel secure in their financial future, thanks to the tailored advice and assistance provided by Cooper Associates. We are proud to have made a meaningful difference in their lives. We have helped them with protecting their business, achieving financial security and optimising their tax situation.
If you have a business that you would like to protect, please contact our business protection advisers today.