Business life insurance explained
Protect your business' finances if the unexpected happens
What is business life insurance?
Business life insurance is designed to protect a company financially if a business owner or employee becomes critically ill or dies, with options to add critical illness cover. It can help ensure the business survives by paying out a lump sum directly to the company that could cover the cost of hiring replacement staff or cover the loss of earnings. It can also be set up as an employee benefit to offer a lump sum to a staff member’s family.
Running a business comes with risk and without adequate financial protection in place, you could run into serious financial difficulty if a member of staff were to die or fall seriously ill.
Do you need to provide life insurance to employees?
There’s no legal requirement to offer life insurance to employees but there are benefits in doing so for both your business and employees.
For a start, business life insurance is a relatively inexpensive but valuable benefit to those currently uninsured. It can provide your employees with peace of mind that their loved ones will be taken care of financially if they die, and it’s more convenient and cheaper than taking out a policy themselves.
By offering this benefit as a company, you can make employees feel valued and cared for, improving morale and helping you attract and retain talent.
There’s no legal requirement to offer life insurance to employees but there are benefits in doing so for both your business and employees."
Types of business life insurance
Key person insurance pays out if a particularly valuable member of staff dies or is unable to work due a terminal illness. This type of cover is important if there’s no one else in the business who could take over that person’s responsibilities.
Premiums and payout amounts are worked out by calculating how profitable the key person is for the business plus their salary, alongside their age, health and lifestyle. The proceeds from the claim can be used to help recruit new staff or cover a loss in profits.
If a business partner or shareholder dies, share protection enables others in the business to buy their share of the company and stay in control of the business.
Without this cover, the deceased person’s assets, which includes the shares they own, would usually pass to their beneficiaries. This can cause complications for the business, with those beneficiaries potentially having a say in how the business is run.
This can be a cost-effective and tax-efficient way for small businesses to offer life insurance to an individual employee. It’s also an alternative way for businesses to offer death-in-service benefits outside a registered group life scheme and Directors can take out relevant life insurance on themselves too.
Relevant life insurance will pay out a lump sum on death or diagnosis of a terminal illness. It can be classed as a business expense so there is no income tax to pay. And policies written in trust will protect beneficiaries from inheritance tax.
Offering benefits such as income protection and critical illness cover to employees can help them to feel valued. Income protection provides a replacement income if an employee is unable to work due to illness or injury and it will pay out until they can return to work. Critical illness pays out a tax-free lump sum if an employee is diagnosed with a specified critical illness, examples may include non-terminal cancer and strokes.
Types of business life insurance
Key person insurance
Share protection
Relevant Life Plan
Employee benefits
How to choose business life insurance
There are a number of factors to consider when weighing up which type of business life insurance is best for your business:
Cost
Premiums
Payouts
Customisation
Pros and cons
Pros
Cons
“Having protection in place to cover financial losses caused by the death or serious illness of an employee can help your business navigate this difficult scenario. And depending on the policy, it may also offer peace of mind to the employee knowing their loved ones will be taken care of if the worst happens.”
FAQs
The cost of small business life insurance will depend on a range of factors. If you have a relevant life insurance plan, these factors will include each employee’s age, lifestyle and any pre-existing health conditions. It could also include their job role and the industry they work in. Where the payout is a multiple of the employee’s annual salary, this will also be taken into account.
If you’re applying for group life insurance, or death-in-service benefit, costs are based on risk characteristics of the group as a whole, rather than individuals.
It depends, relevant life insurance premiums can be counted as a business expense and are tax-deductible for incorporated businesses. If you’re self-employed, you generally can’t deduct business life insurance costs through your tax return as it’s classed as a personal expense. It’s unlikely to be available to you anyway, as it usually requires a limited company structure. If in doubt, you should check with your accountant.
By contrast, personal life insurance plans can’t be claimed as a business expense and are not tax-deductible.
Yes, you can pay for business life insurance through your business. In fact, doing so means you’ll benefit from tax relief as well as significant savings. If you take out a relevant life insurance policy, you can claim the cost against your corporation tax bill and National Insurance payments can be waived for the employee.
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