Scottish Widows Protect: Business Protection
Business protection Overview
Scottish Widows Protect plans are menu-based so you can choose to have more than one policy in your plan to meet your specific business protection needs. Your plan is also flexible so you can apply to update it as your business develops.
Your adviser will be able to help you structure a plan to suit you and your business and also discuss what trusts you can use for the benefit of you and your business.
You can use business protection to help protect your business against the following:
A key person
Key person cover protects a business against the loss of one of its key employees in the event of a specified critical illness, terminal illness or death. A key person is someone whose long term absence or death would affect the overall profits of the business such as an owner, a director, sales people, or any employees with specialist skills or knowledge.
The key person is the life assured and the business is the policy owner which pays the premiums.
Loan protection protects the business against the risk of a loan to the business needing to be repaid in the event of the critical or terminal illness or death of a loan guarantor.
Lenders usually stipulate that this sort of cover be in place, but for smaller businesses, directors may have taken out a personal loan to finance the business, maybe using their family home as collateral for example. In these cases there is additional need to protect the guarantor, where in the event of default due to death or earlier critical illness the family home may be at risk.
The guarantor is the life assured and the business pays the premiums.
Shareholder protection protects the financial interests of shareholding business owners, partners or directors against critical or terminal illness or death of another business shareholder, such as partner or director.
To help retain control of the business and maintain fair value, the remaining owners need to be able to buy the business share from the person covered or their estate. This would be achieved where the money is provided by the protection policy and the control using a cross option agreement between the company and the estate.
Relevant Life policies are individual life cover policies. They’re designed to enable employers to offer tax efficient death-in-service benefits to their employees outside of a registered group life scheme. They are also used for high-earning employees who have substantial pension funds and want their death-in-service benefits to sit outside of their lifetime allowance*.
Other tax advantages of Relevant Life policies:
- The payments made won’t form part of the employee’s annual pension allowance*.
- The premiums aren’t normally subject to income tax because they’re not assessed as a benefit in kind.
- The premiums can be treated as an allowable expense for the employer in calculating their tax liability, as long as the local inspector of taxes is satisfied they qualify under the ‘wholly and exclusively' rules.
- In most cases the benefits are paid free of inheritance tax because the policy is written in trust and the benefits are paid through that trust.
- The policy is owned by the business and the business pays the premiums. The life assured is usually a key person within that business. The policy is written in trust for the dependants of the life assured.
*For more information on lifetime allowance and annual allowance for pensions, please ask your financial adviser.