Updated: February 19, 2020

Small Business Protection Insurance

Want to know more about how you can protect your small business against an unexpected event? Read our guide to learn about all the options available

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Richard Angliss

Author: Richard Angliss - Finance Expert

Updated: February 19, 2020

Protection insurance is vital for businesses in the current economic climate, and this applies to small companies as well as larger operations.

In this guide, you’ll learn what kind of cover small businesses typically need, where to get the right advice on this subject and how to secure the best deals for your firm.

What types of protection insurance are available for small businesses?

There are a range of protection insurance products that small businesses and small business owners can take out.

The main types they tend to need are…

  • Business loan protection
  • Key person protection
  • Share protection
  • Relevant life insurance

Read on for more information about each of these products or make an enquiry to speak to a business protection expert about the insurance options available to your firm.

Business loan protection
Key person protection
Share Protection
Relevant life cover

Business loan protection is a type of life insurance that can help a small business pay off its debts if the owner, a partner or director was to pass away. It can cover any type of business debt, such as overdrafts, business loans, commercial mortgages and directors’ loans.

Many providers offer business loan protection policies with critical illness cover as an optional add-on, offering firms debt assistance if they were to lose an owner, partner or director to a serious illness or health condition listed in the terms of the policy.

You can read more about these products in our guide to business loan protection.

Key person insurance is a type of protection that firms can take out on a business-critical member of staff to cover them if the insured person passes away. It pays out a lump sum upon the staff member’s death or in the event of a terminal diagnosis.

Many key person policies also combine life insurance with critical illness cover, so the business would be covered if the insured person was unable to work for a prolonged period due to illness or injury, subject to the terms and conditions of the policy purchased.

Although less common than lump sum-based policies, some key person plans can serve as income protection insurance for small businesses, paying out regular monthly income in the insured person’s absence. This can either cover sick pay or wages for their replacement.

You can read more in our in-depth guide to key person insurance.

Share protection is another form of business life insurance that owners of a small company can buy to help them purchase additional shares if one of their co-owners dies. This can help small business owners retain control of their company during a challenging time.

Proceeds are paid to the remaining owners upon the death of their colleague. Some policies also include critical illness coverage as an optional extra.

Relevant life cover is a product small businesses can buy as a perk for their employees. It pays out a lump sum to the insured person’s beneficiaries in the event of their death, and the monthly/annual premiums are payable by the company, rather than the individual.

These products are also of benefit to the company itself as they can be declared as a business expense. Directors can also use them to cover themselves using the firm’s income.

You can read more in our comprehensive guide to relevant life cover.

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What protection does my small business need?

Most experts will tell you that small businesses should have all of the above in place – business loan protection, key person protection, share protection and relevant life cover.

Business loan protection can be vital to smaller operations and start-ups since many of them have to take on debt to get up and running. Young, small companies are also usually less equipped to repay debts in the event of losing a director, owner or partner, than a more established firm.

The importance of key person insurance to small businesses cannot be overstated. Losing a business-critical member of staff can be more damaging to small companies than larger firms. According to research by Legal & General, 46% of new businesses collapse immediately if they lose a crucial member of staff without key person insurance in place.

Losing a founder without share protection coverage can be similarly damaging. There’s a risk that, in the worst case scenarios, your business could fall under the ownership of an unwelcome family member or even be sold off to a rival company.

Relevant life cover may be less crucial in some respects, but it can be highly beneficial. Many small businesses are unable to provide full group life insurance coverage for their staff, either because they can’t afford to or wouldn’t qualify due to their size. Relevant life is often a viable alternative way to provide cost-effective death-in-service benefits.

Furthermore, offering relevant life cover to your staff can help bring down your firm’s corporation tax bill as it can be declared as a business expense.

What is risk management and how does it relate to business insurance?

Risk management is an important process that small businesses should use to identify, assess and treat risks that pose a threat to their day-to-day operations.

Through risk management, a firm might identify a threat and decide that protection insurance is the right way to safeguard themselves. For example, a retail firm might hire an e-commerce expert to spearhead a push into online sales. There is a risk of the new department going under if this employee leaves unexpectedly, but a risk management assessment would flag this up and perhaps suggest key person insurance as a safety net.

How to get the best rates and deals

Your first course of action should be speaking with a business insurance broker. They can help you identify exactly which protection insurance products your firm needs and then search the market for the finance providers offering the most favourable deals.

The premiums you’re likely to pay will vary based on many factors, including the type of protection product you’re buying, the age of the person you’re insuring and the level of cover you need. The market is vast and the amount providers will charge for cover can vary dramatically from one company to the next, which is why going direct is not recommended.

If you approach an insurance provider directly, you will only have access to their products and would be running the risk of missing out on a better deal elsewhere.

If you apply through a business insurance broker, like the ones we work with, there’s no danger of this. The experts we work with are whole-of-market and will make sure you end up with the best deal that you qualify for, based on your firm’s exact requirements.

Speak to an expert

If you’re looking for protection insurance for a small business, seeking expert advice first will pay off in the long run. The business insurance brokers we work with can offer bespoke advice about your firm’s insurance needs and search the whole market for the best deals.

Our advisers are regulated by The Financial Conduct Authority and so you will be dealing with a highly trained person that adheres to strict rules of conduct.

Call 0808 189 0463 or make an enquiry and we’ll introduce you to an advisor who specialises in small businesses for a free, no-obligation chat.

Ask a quick question

We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in business protection insurance. Ask us a question and we'll get the best expert to help.

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Richard Angliss

Richard Angliss

Finance Expert

About the author

Richard Angliss has made a career in financial services which stretches over 40 years.

His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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