Setting up a business protection plan
We understand that organising business protection can seem complicated. But once you've agreed with a client what cover best suits their needs, we can help guide you through the process of submitting their application.
When arranging business protection cover for your clients, there are three main things to consider.
First of all, what’s the cost of replacing a key person? Ideally, the contribution they make to the profit of the business should be covered for at least a year. There may be a director’s loan account or other business loan payments that need to be covered. And, if these loans are secured to a personal property, such as a family home, this means personal estates should be covered too.
Next, you need to think about whether you’re covering a sole trader, a limited company or a partnership. If a sole trader is the key person, then personal protection may be more suitable. But, if the sole trader employs a key person or has a bank loan, they may want to consider business protection.
For limited companies, a plan would be taken out on the lives of the key people in the business. The company receives the benefits and spends the pay-out according to the business’s needs, which could include repaying a loan.
With partnerships and limited liability partnerships, partners have equal liability for the debt of the business. Equity partners would take out a plan on their own lives to cover the value of their loss as a key person. Cover would be in their name under a business trust and the benefits would be available to the surviving partners.
And finally, it’s important to consider ownership issues and succession planning. For example, what happens to a person’s business shares if they die?
It’s worth asking if your clients’ have a business will in place. This helps make sure that the estate of any shareholder who dies gets fair market value for these shares and that the remaining shareholders retain control of the business.
Royal London has a team of dedicated Corporate Protection Specialists who can provide training, seminars, technical support and business development.
And with all that support, your advice is sure to stand out from the crowd.
To find out more, visit adviser.royallondon.com/businessmenu.
The information we'll need
As with Personal Menu Plan applications, full disclosure is important. To help us fairly and accurately underwrite your client's application we need as much information as possible. And the more information we get, the quicker we can set up the plan.
Even details which may seem unnecessary are important when setting up a business protection plan. For example, your client's occupation and duties will help us to work out their risk category and the definition of disability or incapacity we can apply to their covers.
You’ll find application forms, financial questionnaires and handy sales aids in our literature library.
Depending on the type of protection and the size of the case, we may need more financial information to help us underwrite the application, such as:
- Key person protection - an idea of why the key person is important to the business, their contribution to the net/gross profits, and what it would cost to replace them.
- Ownership protection - a valuation of the business's share value for shareholder protection purposes.
- Loan protection - a copy of the loan offer.
If you're unsure about what type of financial information you should include, our underwriters will be happy to help.
Cover now, underwrite later
There are times when we’ll need to request additional medical evidence before we can complete our assessment of a client's application, which can sometimes cause delays.
But with our Underwrite Later option, the cover can be started straight away whilst we wait for the medical information we need to fully assess the application – giving your clients the peace of mind that their business is protected.
When setting up business protection for your clients, it’s vital to consider who receives the benefits and how they’re distributed.
Having business protection cover placed under a business trust means that benefits are paid to the surviving shareholders, partners or members when a co-owner dies or becomes critically ill. And it also avoids any inheritance tax complications.
With partnership or shareholder protection, there’s also a cross-option agreement. This ensures that the person covered, or their beneficiaries, can sell their share of the firm to the remaining co-owners upon death or critical illness. And the remaining co-owners have the option to buy. The agreement also outlines how any interest or share of the business is to be valued.
With the Royal London business trust, all the information required is captured as part of the online application without the need for electronic or wet signatures. And once the application is submitted, a confirmation is sent to the plan owner and nominated trustees – keeping everyone in the loop.
To find out more, visit adviser.royallondon.com/onlinetrusts.
Tax and trusts
Trust and tax considerations need to be assessed when considering business protection:
Putting the protection in a Business Trust means the benefits are paid to the surviving or continuing shareholders, partners or members on death or critical illness of a co-owner without giving rise to any inheritance tax complications.
With partnership or shareholder protection, getting funds to the surviving or remaining shareholders, partners or members is the first step. A cross option agreement ensures the estate or the critically ill shareholder, partner or member has the option to sell to the remaining co-owners and conversely, they've the option to buy. This agreement also outlines how any interest or share of the business is to be valued.
With our business trust you can now complete the relevant form online without the need for an electronic or wet signature - making the process simple and straightforward for you and your clients.
We're here to help
Whenever you submit a business protection case with us, we'll provide you with a dedicated case manager and underwriter. They'll look after your application all the way from start to finish.
Your case manager will give you regular updates by phone or email and will request any additional evidence for your cases, such as GP reports. You can also contact the underwriter directly to check what information and evidence to include before you submit an application, which can help speed up the underwriting process.
If you don't know who your case manager or underwriter are, or if you're new to us, just give us a call on 0345 6094 500 and we'll put you through.
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