Protect your business
from the unexpected.

What is business protection insurance?

Business protection insurance is an umbrella term for policies that protect a company against the financial impact of losing a key person, business owner, or shareholder through death or serious illness. Whilst most businesses insure their premises, equipment, and public liability, the unexpected loss of a key individual can cause financial harm that no general business insurance policy will cover.

Key person insurance, shareholder protection, and business loan cover

The three main types of business protection serve distinct purposes. Key person insurance is taken out by the company on an individual whose skills, relationships, or revenue generation are critical to the business. Shareholder protection ensures that if a shareholder dies, the surviving partners have the funds to purchase their share, preventing unwanted ownership by the deceased's estate. Business loan protection covers outstanding commercial loans and director's guarantees, protecting personal assets if a business is wound up unexpectedly.

The tax efficiency of relevant life plans

For directors and employees, a relevant life plan offers a highly tax-efficient route to provide death-in-service benefits. Premiums are typically treated as a business expense for corporation tax purposes, the benefit is paid into a discretionary trust (outside the estate for inheritance tax), and neither the employer nor employee incurs a P11D benefit-in-kind charge. A regulated adviser will ensure the correct structure is in place. Tax treatment depends on your individual circumstances and may change in the future.

How much key person cover does a business need?

There is no single formula, but common approaches include a multiple of the key person's salary (often two to ten times), their share of gross profit, or the estimated cost of replacing them and the revenue lost while you do. The right figure is one you can justify to the insurer and that genuinely reflects the financial hole their loss would leave. An adviser will help you arrive at a defensible sum assured rather than guessing.

Setting up shareholder protection: cross-option agreements

Shareholder protection only works smoothly if the legal framework sits alongside the policies. A cross-option agreement(also called a double-option agreement) gives surviving owners the option to buy, and the departing shareholder's estate the option to sell, the shares, usually funded by life and critical illness policies written into trust. This keeps the payout outside the estate, ensures the money reaches the right people, and helps preserve business relief for inheritance tax. Getting the trust and agreement right is as important as the cover itself.

Relevant life plans vs group death in service

A relevant life plan provides individual death-in-service cover for a single director or employee, paid for by the company. For small companies without enough employees to justify a group scheme, it delivers similar tax efficiency on an individual basis: premiums are generally an allowable business expense, the benefit is paid through a discretionary trust outside the estate, and there is normally no benefit-in-kind charge. It is a particularly tax-efficient way for company directors to hold personal life cover.

Protecting a director's income through the company

Business protection is usually about lump sums, but a company can also protect a key person's earnings through executive income protection, where the company owns and pays for the cover, our guide explains the tax relief, why the benefit is taxed through PAYE, and what the plan can insure beyond salary. This overlaps with how limited-company contractors arrange cover, covered in our guide to income protection for IT contractors, and our business protection guide for directors covers the wider picture.