Business protection planning starts with a practical question. If a particular person were unavailable tomorrow, which bills would the company still have to pay and who would keep the work moving? The answer often reveals two separate needs: cash for the business and financial support for the person’s family.
Which loss would the business need to cover?
Consider a small engineering firm where one director prices specialist jobs and holds its largest customer relationships. Losing that person could delay tenders while wages, rent and recruitment costs continue. Rather than simply picking a multiple of salary, estimate the time it would take to train a replacement and which contracts or margins would be most exposed.
Key person cover can help a business deal with financial loss following a covered event affecting an insured individual. Ask who would own the policy and receive the proceeds, which events qualify, and how the proposed cover amount relates to the likely loss. Legal & General’s explanation of key person cover gives an example of how this type of arrangement works.
What if the intention is to provide for a family?
Relevant life cover serves a different purpose. It can allow an employer to arrange life cover for an eligible employee, which may include a salaried director, for the benefit of dependants. Discuss eligibility, trust arrangements and what happens if the employee leaves. Ask your accountant to confirm the tax position for your circumstances. If you are reviewing personal arrangements too, our family protection guide starts with the household budget.
What should directors bring to the meeting?
List the owners, key roles, existing insurance, business loans and any guarantees. Bring shareholder or partnership agreements if a death could affect ownership. Funding a change of ownership raises different questions from covering lost trading income. Your solicitor can check the agreements alongside any proposed insurance.
For an owner whose household also relies on drawings or earnings from the firm, income protection may be worth discussing separately. Arrange a business protection conversation with Greenacre and tell us whether continuity, family benefits or ownership is your first concern.