Protect the business, not just the people in it.

The question nobody asks until it is too late

Most business owners have insured the van, the stock, the premises and the professional indemnity.

Far fewer have insured the two or three people the whole thing actually depends on.

It is an odd gap, because if you lost the van you would be inconvenienced. If you lost your co-director you might lose the business. The van is insured. The reason is usually not negligence. It is that business protection sounds complicated, the names all blur into one, and there is always something more urgent.

So here is the plain English version of what each one does and who tends to need it.

The four covers, and what each is for

Key person insurance pays money to the business if someone central to it dies or becomes critically ill. The business uses it to keep the lights on, cover lost income, recruit a replacement or repay a loan that person personally guaranteed. Think about whose absence would cost you money, not whose job title sounds important. More on the key person insurance page.

Shareholder protection makes sure the remaining owners can buy out a shareholder who dies or becomes critically ill, rather than those shares passing to a family who may neither want them nor know what to do with them. It needs a policy and a legal agreement working together, which is where plenty of arrangements fall short. More on the shareholder protection page.

Relevant life plans are life cover for a director or employee, paid for by the company, with the payout going to their family rather than the business. For directors who would otherwise buy personal life cover out of money they have already drawn, it is worth a look. More on the relevant life plans page.

Executive income protection covers a director's or key employee's income if they cannot work through illness or injury, with the company paying the premiums. More on the executive income protection page.

The first two protect the business. The second two protect the person, through the business.

Who tends to need what

A sole director with a family and a mortgage. Life cover arranged through the company is usually the starting point, then income protection. There is nobody else in the business to buy out and no key person other than you.

Two or more shareholders. Shareholder protection, with a proper cross-option agreement behind it, moves up the list quickly. Without it, your co-owner's shares can pass to their spouse, and you may be in business with someone you have never worked with.

A business carrying debt, or a director who has personally guaranteed a loan. That guarantee does not disappear if the director dies. It falls to their estate, which usually means their family.

A business where one person brings in the work. If the relationships, the technical knowledge or the sales sit with one individual, that is your key person whatever the org chart says.

A business with a strong second line and no debt. You may need less than you think. I will tell you so.

Where business protection goes wrong

The policy exists, the agreement does not. Shareholder protection without a cross-option agreement often leaves everyone with good intentions and no mechanism. The policy and the paperwork have to match.

The cover was right in 2019. Company valuations move, loans get repaid, people join and leave. Cover set years ago and never revisited is a common and expensive problem. A review every couple of years, and after any significant change, is a reasonable habit.

It is owned by the wrong person or paid from the wrong account. Who owns the policy, who pays the premiums and who receives the payout all matter, including for tax. It is one of the things worth getting right at outset rather than unpicking later.

Trusts get forgotten. Where cover is meant to reach a family rather than the business, the arrangement needs to be set up properly for that to happen smoothly.

Everyone assumes someone else has handled it. Usually the accountant assumes the adviser has, the adviser assumes the solicitor has, and the solicitor has never been told the business exists.

Tax, honestly

Business protection is often described as tax-efficient, and in the right circumstances it can be. But the treatment depends on who owns the policy, who pays for it, who benefits from it and how the business is structured, and the rules can change.

I am not a tax adviser and I will not pretend to be one. What I will do is explain how each arrangement works, set out the questions your accountant needs to answer, and speak to them directly so the insurance and the tax position are decided together. For anything involving shares or agreements between owners, your solicitor needs to be in that conversation too.

How a business protection conversation usually goes

1. Who and what. Who the business depends on, who owns it, what it owes.

2. What breaks. What would actually happen, financially, if each of those people stopped tomorrow.

3. What is already in place. Often there is cover nobody has looked at in years.

4. What matters most. Few businesses want to insure everything at once, so we order it.

5. Set it up properly, with your accountant and solicitor involved where the structure calls for it.

If you run a limited company and your mortgage is also on your mind, the business owners and directors page covers how lenders assess director income.