Relevant Life Cover and Shareholder Protection

Both relevant life cover and shareholder protection provide important insurance for small businesses who rely heavily upon the expertise of a finite group of employees in order to grow and achieve success.

This article looks at the key differences between relevant life cover and shareholder protection and the specific circumstances where these types of business insurance may be desirable.

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What are the differences between relevant life cover and shareholder protection?

In a nutshell, the key difference between these types of insurance is as follows:

Relevant life cover is designed to provide financial provision for an employee’s beneficiaries in the event of their death and shareholder protection offers a safeguard for the business owners if one of them were to die with no written agreement (or funding) in place.

Let’s look in a little more detail about how these insurances work and what benefits they provide:

What are the key benefits of relevant life cover and how does it work?

For any small business (typically with less than five employees) which doesn’t qualify for a group insurance scheme, relevant life cover can provide death-in-service benefits for the family of an employee if they were to die whilst under contract.

Relevant life insurance is bought and paid for by an employer, therefore it’s effectively free life cover for an employee. As the policy is kept within a discretionary trust, any lump-sum payments made to a beneficiary are free of any income or inheritance tax liabilities.

Other key benefits of relevant life cover for an employee include:

  • All lump sum benefits remain outside an individual’s lifetime pension allowance
  • Insurance premiums are not categorised as a benefit-in-kind

For an employer, relevant life cover is an attractive benefit to be able to offer potential employees and can help retain highly skilled existing members of staff whose contribution is crucial to the business’ performance.

It is also a very tax-efficient form of insurance for limited companies as premiums are classed as tax-deductible for corporation tax purposes.

What are the key benefits of shareholder protection and how does it work?

Whereas relevant life insurance very much focuses on protecting an employee’s family in the event of their death, what happens if one of the company owner’s were to die? More specifically, what happens to their share of the business?

Should this event occur, the deceased’s share of a business will typically pass to their beneficiaries.

If a company has no written agreement in place outlining what should happen in this eventuality and a beneficiary’s preference is to liquidate their inheritance, the remaining owner(s) must find the funds to be able to purchase these shares.

Shareholder protection insurance provides a business with the appropriate funding for the surviving shareholders to purchase the shares from a beneficiary as the sum assured is typically equal to the value of each owner’s share of the company.

Succession planning is a very important part of a business’s success (and one that many often overlook) – whether large or small. Shareholder protection can prove to be a valuable form of insurance enabling a firm to act upon the written agreement of all the company owners should one of them pass away unexpectedly.

At the very least, shareholder protection will prompt a business to ensure it has a written succession agreement in place and, most importantly, the funding required to cover the cost of each owner’s shares.

If you’d like to know more about the key differences between relevant life cover and shareholder protection, make an enquiry and we will arrange for an advisor we work with to get in touch.


Can I use a relevant life policy for shareholder protection?

Due to the tax concessions made by HMRC, on the basis it is designed to provide financial assistance for an employee’s family in the event of their death, relevant life cover is not typically deemed appropriate for shareholders looking to insure each others equity within a business.

It is completely acceptable, however, for a business to have a relevant life policy in place for their employees, in addition to a separate shareholder protection insurance plan for the business owners.

Can I include critical illness cover in addition to either relevant life cover or shareholder protection?

Yes, this is possible. There are a number of providers for both these types of insurance who can offer additional cover should either an employee or a shareholder of the business become incapacitated due to a severe critical illness or serious injury.

Get in touch and we can arrange for an advisor we work with to help you identify which providers can offer this type of insurance.


How does keyman insurance differ?

Keyman insurance is designed to provide a business with financial support following the death of a key member of staff. The sum assured from this type of insurance could be used to recruit someone with similar skills and abilities or offset any potential fall in the business’ profits as a result of the employee’s death.

If you’d like to speak with an expert regarding keyman insurance make an enquiry and we will arrange for an advisor we work with to contact you.


Speak to a business insurance expert

It’s important to understand the key differences between all the various types of insurance so you’re better informed as to how you can protect the long-term future of your business. This is where we can help.

The advisors we work with can discuss the benefits of each type of business insurance in more detail. All advice is free and any information is always given in the strictest confidence. Call us on 0808 189 0463 or make an enquiry to get started.

We'll match you with your perfect financial advisor

Save time and money with an expert who specialises in cases like yours

We'll match you with your perfect financial advisor

Save time & money with an expert who specialises in cases like yours.

We’ll match you with your perfect financial advisor – for free.