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Our best business life insurance for your business

Protect your business' finances if the unexpected happens

Here we explain how business life insurance works, the different types of cover available and how to find the right life insurance policy for your business.
Last updated
November 29th, 2023

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. It can help ensure the business survives by paying out a lump sum that could cover the cost of hiring replacement staff or cover the loss of earnings. It can also offer benefits to staff such as income protection.

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

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 are worked out by calculating how profitable the key person is for the business. The proceeds from the claim can be used to help recruit new staff or cover a loss in profits.

Share protection

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. 

Relevant Life Plan

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.

Employee benefits

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

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 are worked out by calculating how profitable the key person is for the business. The proceeds from the claim can be used to help recruit new staff or cover a loss in profits.

Share protection

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. 

Relevant Life Plan

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.

Employee benefits

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.

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

If you’re considering taking out more than one type of business life insurance, you’ll need to consider exactly how much each one will cost your business. Fortunately, life insurance for employees is relatively inexpensive.

Premiums

The cost of life insurance premiums will vary depending on the insurer, so it pays to shop around and compare rates from a range of companies first. Typically, a policy for a company with more employees will be cheaper per employee compared to a smaller scheme.

Payouts

Depending on the insurer and the type of policy you choose, you might be able to select a lump sum payout or a monthly income. If you choose a lump sum, the payout and the premium can remain the same for the term of the cover or increase in line with inflation.

Customisation

Think about how much life cover you need. This will depend on the size of your business, the number of employees, overhead costs, the amount of debt your company has and your overall financial stability. You’ll need to provide this to each insurer before you can find the right policy.

Pros and cons

Pros

Business life insurance provides valuable financial protection for your company
Employee insurance benefits can help you to attract and retain staff
Business life insurance policies are often tax-deductible

Cons

Critical illness cover can’t be added to relevant life insurance plans
Buying business life insurance increases overheads
It can be difficult to know which type of cover is best for your business
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

How much does small business life insurance cost?

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.

Can life insurance count as a business expense?

Yes, certain types of business life insurance, such as key person life insurance and relevant life insurance, can be counted as a business expense and are tax-deductible. If you’re a limited company or self-employed, you can deduct eligible insurance costs through your tax return. 

By contrast, personal life insurance plans can’t be claimed as a business expense and are not tax-deductible.

Can I pay for business life insurance through my business?

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.

About the author

Rachel Wait
Rachel has written extensively on credit cards, pensions, insurance and mortgages for leading price comparison sites and the national press.

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