Getting into the detail of Business Protection Insurance

Undoubtedly the last 12 months will have been an extremely challenging time for thousands of businesses in the UK, large and small. During this difficult time businesses have had some access to financial support in the form of government backed recovery loans, grants and other measures such as the furlough scheme. The measures, necessary given the circumstances, highlight the need for businesses to have a financial safety net in place and access to sufficient funds in an emergency.

Whilst a global pandemic is hopefully a rare event, many companies regularly face major financial disruption and ownership succession problems, through the death or ill health of key people and business owners. Advisers can play a significant role in reducing this business protection gap, by highlighting to their clients the importance of Key Person and Shareholder Protection Insurance, alongside other benefits for employees such as Relevant Life Insurance. In this ‘everything you need to know’ we share some of our recent insights, getting stuck into the detail of business protection insurance.

Contents:

• How can employees continue their relevant life policy in a new job?
• How does Royal London’s new and improved business protection calculator stack up?
• Who has the most generous guaranteed insurability options on business protection?
• When are financial questionnaires required for critical illness cover via business protection?
• When is financial evidence required on life insurance business protection cases?

How can employees continue their relevant life policy in a new job?

One of the things that advisers might want to highlight when introducing relevant life plans to business owners is their portability. Those who know nothing about these plans may assume that once an employee leaves a firm or retires, that is the end of the policy. However, providers of relevant life plans tend to offer continuation options that cater for the changing needs of a client’s employees. This can be an easy way for business owners to provide an employee benefit which has real value to the individual, even beyond the current workplace. In this insight we looked at how useful continuation options are likely to be and how providers differ in terms of what they offer.

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How does Royal London’s new and improved business protection calculator stack up?

The UK is a nation of small businesses, with over 99% of companies in the UK being SMEs (those with between 0-49 employees). These businesses account for a large chunk of private sector turnover and employ a significant number of the overall UK workforce. The last year has of course been an incredibly challenging time for businesses, but the hope is that those that do survive the economic consequences of coronavirus will come out of this more resilient, dynamic and agile. There persists though a significant protection gap amongst UK SMEs, with many companies not having the necessary protection insurance in place to survive either the loss of key people or to properly manage ownership and succession plans should a shareholder pass away or fall ill. Advisers can play a crucial role in addressing the gap, with access to the right learning materials, technical guidance and tools to help facilitate business protection conversations with their clients. In this insight we took a closer look at Royal London’s newly improved Business Protection Calculator.

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Who has the most generous guaranteed insurability options on business protection?

For insurers who offer business protection, assessing the value of the Key Person correctly means that if the worst happens, their company will receive a big enough pay out to meet its needs. It also means the insurance company is not paying an unrealistic figure that exceeds that person’s worth to the business. However, valuations are never set in stone and guaranteed insurability options are a way that insurers can increase the sum assured in line with changes in circumstances, without the need for further underwriting. In this insight we looked at how Key Person life policies provide GIOs in relation to increases in the value of a Key Person, a partner/shareholder’s interest and a new or increased business loan.

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When are financial questionnaires required for critical illness cover via business protection?

By arranging critical illness cover through business protection such as key person cover, advisers can give their clients peace of mind in that if the worst should happen, there will be a pay out to tide the business over. As with any type of insurance policy, the insurer needs to understand the risks involved in providing cover to an applicant, which it does through the underwriting process. Clients will perhaps be familiar with the need to provide medical evidence to support their application, but insurers will also need to understand a company’s financial circumstances when applying for business protection. In this insight we looked at the financial underwriting requirements for critical illness cover in relation to business protection.

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When is financial evidence required on life insurance business protection cases? 

When a person who has passed away is a key person or shareholder of a business, that loss is likely to have a massive impact on the business and its ability to survive. For business owners and shareholders that are left behind, the difficulty is to keep the business on an even keel while coming to terms with the loss on a personal level. This is where business protection comes in – in the unfortunate event that someone who is hugely important to the business dies, it provides financial support to get the firm back on track and ready to face the future. Understanding financial underwriting limits can help reduce the amount of paperwork involved at the application stage and streamline the process, which is helpful to everyone involved. In this article we looked at the financial underwriting requirements for business protection.

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Look out for future “Everything you need to know” articles where each week we will cover a different topic and provide you with the information you need to know to discuss the topics with your clients. 

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