Why even your SME needs key person and shareholder protection

As a business owner, it is normal to want ‘business as usual’ – but would your business run as usual in the event of something serious happening to a key member of staff or a shareholder?

Usually, the answer is no. Over half of businesses in the UK believe that if a key person within the organisation was to become critically ill or die, the company would cease trading. It is vital that your business is protected against events such as this to ensure you have firm control.

What is key person protection?

Key person protection should be taken out for individuals whose skills, knowledge, leadership and experience contributes to the financial success of a business.

Key person protection is essentially a life insurance policy, owned by the business, but written on the life of a key member of staff such as a director. Similarly, to an individual’s life insurance policy, the business can also add Critical Illness Cover.

Key person protection helps to safeguard against the financial burdens which death and terminal or critical illness of a key individual, will have on your business.

What is shareholder protection?

Shareholder protection can be added to the life insurance policy of each shareholder within the business, to protect the business should a shareholder develop a terminal or critical illness or in the event of death.

Shareholder protection can provide the remaining shareholders with a sum of money to allow them to buy the critically ill or deceased partners share of the business. It is important to note that the terminally ill shareholder must have a life expectancy of 12 months or less to avail of shareholder protection policies, and their illness needs to be named on your providers specified list of ‘critical’ illnesses.

Shareholder protection premiums are paid by the business and are treated as taxable income for each shareholder and much therefore be reported to HMRC.

Premiums always reflect the age and sums assured of each individual shareholder, there the amounts paid do not reflect the payment each individual may receive in the event of a claim.

How we can help

At Mortgage Solutions, we have a dedicated team on advisers who have expert experience of helping business owners protect their businesses, employees, shareholders and themselves.

Our team of dedicated experts can complete a company health check, review or help you implement a succession plan and ensure that you as a business owner, have the right plans in place in the event of a worst-case scenario.

Contact one of our expert advisers today.

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